Silver (XAG) Forecast: Silver Market Eyes 50-Day MA at $74.55 for Possible Momentum Shift

Silver Plunges Over 36% as Speculative Positions Unwind

Spot Silver is down over 36% midday with momentum indicating there is more to follow. Call it what you will, profit-taking, position-squaring or long-liquidation, but investors are shedding positions in droves. It’s not because of some major shift in the fundamentals like the discovery of a major silver vein, there’s still a deficit, it’s because speculative demand got way ahead of industrial or real demand and the invisible forces of supply and demand always win over the long-run.

After blowing through two short-term retracement zones and one steep uptrend line, where are we headed? Currently, the market is testing a trend line from the November 21 main bottom at $48.64. It has held as support for 48 sessions, moving up at a rate of about $0.79 per day. It comes in at $86.74 today.

At 18:22 GMT, XAGUSD is trading $76.27, down $39.30 or -34%.

Professional Traders Wait for Momentum Shift, Not Trendlines

Given the tremendous downside momentum, all we can do is treat this trend line as a target. We have to wait patiently while it’s being tested because momentum selling can and will take it out. However, there is always the chance of recovery. What we could see if you watch closely is how professionals trade versus non-professionals.

The non-professional will place orders to buy on the trend line, but the professional will let the market test or go through the trendline then start taking out offers if and when it turns higher. This is the point where the non-professional complains that they were going after his stop. However, this is not the case. The difference is the non-professional placed an order thinking it would stop the decline, but the professional is thinking, let it go until it stops then catch the intraday reversal when the selling is over. In my world, if I want to be long, I take offers, I don’t bid because I’m not big enough to stop the market.

50% Retracement at $83.61 Defines Key Value Zone

With the selling obvious and the market down more than half of its January rally, we may finally get to see what the market perceives as real value. We know that 50% of the rally from $45.55 to $121.67 is $83.61 so that’s a great place to start. We see that the low of the day at 18:09 GMT is $83.06. Since you may have missed the bottom at $45.55 and you may not have wanted it at $121.67, the 50% price at $83.61 may look attractive if you are looking for the bull market to continue over the long-run.

The Fibonacci 61.8% retracement level is $74.63. This may even be a better price to resume the rally since it forms a cluster with the 50-day moving average at $74.55.

Key Decision: Buy at 50% Level or Wait for Deeper Pullback?

So going into the close and the weekend, we’ll have to decide if the 50% level at $83.61 is our value or if we should wait for another clean break into $74.63 to $74.55.

Once support is established and momentum shifts then the buying should increase as the market overcomes the uptrend lines. We’re not watching any headlines or waiting for any news, this is a pure value/momentum shift play. Let’s see how it pans out into the close. Remember if your bias is to the buy side then let the market come to you and watch for a shift in momentum. Otherwise, you’re just guessing and make sure you know your exit before you trade.

More Information in our Economic Calendar.