Silver Rally Pauses: Time to Take a Breath?

Silver Forecast Video for 18.04.23 by Bruce Powers

Silver broke out of a large bull flag (falling parallel channel) several weeks ago on a move above the downtrend line at the top of the pattern. Strength was quickly confirmed on a daily close above the trendline and swing high of 24.62 from early-February. That swing high is part of the downtrend price structure, so a break above it is evidence supporting a change in trend from bear to bull. Further, the move above that high confirmed the continuation of the developing uptrend that began from the September swing low of 17.53. Moreover, momentum picked up following the breakout, which is also bullish.

Silver Takes a Rest

Last week silver reached a high of 26.07 before it started to pullback and retrace the advance. It completed an outside day on Friday with a close below the prior day’s low. That high completed a 127.2% Fibonacci extension (greater than 100% retracement) of the prior decline from the January swing high, and almost reached the swing high of 26.20 from April 2020.

Reaches Most Overbought Level Since August 2020

Based on the 14-Day RSI, silver reached its most overbought condition since August 2020. That is when the first sharp advance or impulse leg up ended with a high of 29.83. That rally completed a 165.2% advance in only 20 weeks. It started from a low of 11.64. Similar aggressive buying may be seen again now that silver has confirmed a breakout of a large bull flag.

Retracement Has Started

Nevertheless, in the short term it looks like a deeper retracement than what’s been seen so far is perhaps in the works. Certainly, it would be normal for silver to pullback following the breakout of a large flag and a 31.1% rapid advance. At last week’s high silver was up 31.1% from the early-March swing low of 19.90 in five weeks.

If the retracement does continue watch for support to be found at or somewhere above the downtrend line. The first support target is around the prior swing highs and 23.6% Fibonacci retracement from 24.62 to 24.54, followed by the breakout area around 25.0.

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