Silver (XAG) Forecast: Silver Market Eyes Reversal Pattern After Silver Dropping to $64.06

Silver Rebounds from December Lows

Spot Silver is edging higher on Friday, rebounding from a trade to its lowest level since December 27 at $64.06. The intraday low came in just above a target we had at $59.34. In my opinion, this is the breakout price that led to an eventual rally to the all-time high at $121.67. This support suggestion falls under the old adage, “old tops can become new bottoms.”

At 11:45 GMT, XAGUSD is trading $74.63, up $3.70 or +5.21%.

Key Support Levels in Focus

Also in the area of $59.34 is $60.835, which is 50% of the all-time high. So if you liked it at $121.67, then maybe you’ll like it twice as much at half price.

The major downside target is the 200-day moving average at $50.01. This is close to the psychological $50.00 level.

Pattern Analysis: Watch for Closing Price Reversal

The point is that any price could be the low, but we’re more interested in the pattern. The best pattern to watch for is the closing price reversal bottom. Not the textbook, lower-low, higher close, but also a close above the opening and a close above the mid-point of the day.

Yesterday’s close was $70.94. Today’s opening is $71.10 and the mid-point so far is $69.71. Looking at the three key numbers, my work suggests that closing over $71.10 on better-than-average volume will signal a pretty solid bottom. That’s only the price analysis. The best time for a major reversal bottom is after a 7 to 10 day break. We’re only on day six, but not everything is perfect.

Upside Targets if Bottom Holds

Other signs of a potential bottom will be recovering the 61.8% retracement level at $74.63, the 50-day moving average at $77.04 and the 50% level at $83.60. These will strengthen the case for a bottom. More importantly however, the trend will turn up on the daily chart if buyers can overtake the swing top at $92.20.

If $64.06 ends up being the bottom and the trend changes to up, we could see a near-term surge into the 50% level at $92.87.

CME Margin Hike Could Dampen Recovery

There is a potential headwind that could kill this attempt to reach a short-term bottom, however. The CME Group has again raised margin requirements for silver futures contracts to dampen the risks associated with the heightened volatility over the past week. The margin will be raised after the close of business on Friday, February 6.

What does it mean for silver prices? Obviously, the smaller player is getting shutout from carrying silver overnight so consequently he can’t hold it for a longer-term rally. If he’s allowed to day trade, then he’s going to have to be able to trade with laser accuracy since he’ll have to pitch it at the close. In my opinion, this could add to the intraday volatility.

More Information in our Economic Calendar.