Silver Set Up for Short-covering Rally, but Must Hold Above $16.445

July Comex Silver futures reached an important downside objective on Thursday which could trigger the start of a short-term counter-trend rally. The price is right, but it’s going to need help from the U.S. Dollar to fuel the move since it was the catalyst driving it lower.

On May 2, silver futures formed a bearish closing price reversal top at $18.06. It also made the same chart pattern on the weekly chart. Both chart patterns signaled that the selling was greater than the buying slightly above $18.00.

The main range is $14.83 to $18.06. Given the closing price reversal top chart pattern, its retracement zone at $16.445 to $16.06 became the primary downside target. This objective was met when sellers drove the market inside the zone to $16.35.

The technical bounce off of $16.35 and the close above the 50% level at $16.445 suggests that the profit-taking my have started on Thursday. The early rally on Friday indicates that there may even be speculative buyers in the market.

The short-term range is $17.43 to $16.35. If there is a short-covering rally then the first objective is its retracement zone at $16.89 to $17.02. Since the main trend is down, sellers may come back in on a test of this zone.

If the short-covering is strong enough then the rally may continue into the intermediate range retracement zone at $17.205 to $17.41.

Based on yesterday’s close at $16.49 and the early price action, the direction of the market the rest of the session will be determined by trader reaction to the major 50% level at $16.445.

A sustained move over $16.445 will indicate the presence of buyers. This could create enough upside momentum today to trigger a rally into a resistance cluster at $16.89 to $16.94.

A sustained move under $16.445 will signal the presence of sellers. This could trigger a retest of yesterday’s low at $16.35. This is followed closely by the long-term uptrending angle at $16.23 and the main Fibonacci level at $16.04.

This is a pure counter-trend momentum play so don’t mess around trying to pick a bottom. Because, after all, the main trend is still down. This market is either going to hold $16.445 and retrace to at least $16.89 or its going to consolidate inside the $16.445 to $16.06 range over the near-term. This is too much risk to take on a counter-trend trade.

Simply stated, for day-traders, look for an upside bias on a sustained move over $16.445, or a downside bias under it.