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The silver markets continued to show weakness on Tuesday as the action for the day saw all gains disappear by the end of the session to form a shooting star shaped candle for the day. The candle is within the range of the previous day, and isn’t a wide range – so the implications aren’t as dire as they could be under other circumstances.
However, the area that the market is currently trading in is without a doubt one of the most important ones that we see on the chart. The $31 level was the start of a massively supportive zone down to the $30 level. It is because of this fact that we are a bit leery of selling at this point, although the market looks very weak overall.
The industrial uses of silver vary widely, but in a global slowdown, this market gets crushed. True, there are times when it can work as an inflation hedge, but inflation isn’t what the markets are worried about at the moment. Because of this, the lackluster group around the world is probably going to be the main focus in the silver pits for the foreseeable future. Overall, this should serve as a warning to the bulls in this market.
The overall uptrend over the last few years is still intact to a point, but the action over the last couple of months certainly would have us nervous if we were long of this market. Thankfully, we are not in this position, but we fully admit that we are exactly where we would want to be in order to buy silver. With this in mind, we have a couple of possible scenarios unfolding.
The $30 level should bring in a ton a support. Because of this, we think that supportive candles in this area – hammers, engulfing green ones – should be bought as it has longer term traders on its side. However, if the market manages to close below the $30 level on a daily close, we think that a serious rout could happen in this market – and we would be selling at that point.