A Longer-Term Trading Outlook for Silver

07/09/2010 12:01 am EST


Corey Rosenbloom

Founder and President, Afraid to Trade

Silver is forming a multi-timeframe arc pattern that’s worth watching, as well as key support levels also across the two major time frames.

Let’s start with silver’s weekly structure chart, note the levels to watch, and then move to the daily chart of SLV for similar arcs and levels to know.

Silver Futures Contracts - Weekly:

Click to Enlarge

Silver peaked at the $21 level in early 2008 just after the stock market did in October 2007.

From there, price fell to a 2008 bear market low of $9 per ounce, and then doubled in price through the 2009 recovery year to peak recently at $20.00 per ounce.

Along the way, the price structure formed a rounded arc pattern I have drawn above with the upper arc trend line currently at the $19.50 area. Keep that level in mind as you study the rest of the chart.

I drew a horizontal price support line from the $19.00 level, which also comes into play as overhead potential resistance–along with the arc.

Finally, we see a rising trend line of support that ends at the $16.50 level, though the rising 50-week EMA rests currently at $17.00.

Simply stated, watch $16.50 and $17.00 for potential support on any down move.

Unfortunately for silver bulls, the 3/10 oscillator shows a clear multi-swing negative momentum divergence has formed as price completed the recent arc formation, a common development when price forms arcs.

Negative momentum divergences are non-confirmations of recent price highs and serve as warning signs to monitor bullish positions closely and expect a potential reversal in price as a potential outcome ahead.

Keep all those factors in mind when studying silver’s chart.

Now, let’s drop to the daily chart for more specific levels to watch, but this time on the tradeable ETF SLV:

Click to Enlarge

Prices are similar—but not exactly identical—to the continuous futures contract, so depending on what you trade, watch those levels.

We see a smaller arc formation completing the peak on the daily chart, also at the $19.00-per-share level, which is similar to the larger-scale weekly chart arc.

Resistance thus exists at the $19.00-per-share level, and any break above that would change the structure. Until that happens, look for lower support levels to come into play, like the bounce we’re seeing today off the rising 200-day SMA at $17.25, which also intersects with a rising trend line as drawn.

The moving averages—currently at the $18.00 level—have been insignificant recently, so on any bounce, we could see a move right through this level.

The $19 level is still formidable resistance; just as the $17 level is formidable support.

From a short-term perspective, expect SLV to trade within the confines of this range unless we see an unexpected break to the upside above $19.00, or otherwise, be prepared to trade the potential—and perhaps more likely given the chart data now—the break under $17.00 per share.

By Corey Rosenbloom, trader and blogger,  AfraidToTrade.com

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