Testing Support After Breakout
Silver remained steady for a fourth day on Monday, trading within a relatively tight range that has been testing support near the 20-day moving average. Monday’s low of $79.65 established a four-day low and a new low for the range, before buyers took back control.
That led to a breakout above a two-day high of $85.55 to a high for the day at $86.70. Buyers remain in control at the time of writing, with silver on track to end the session showing strength near the day’s high. Resistance for the short daily range has been around the 50-day moving average, which was again tested with Monday’s high.
Pullback Within Larger Bullish Structure
The larger pattern that seems to be playing out in silver is the first pullback following an upside breakout of an inverse head and shoulders pattern that triggered several weeks ago. An initial leg up following the breakout above $79.50 led to a lower swing high of $96.43 last week. Last week’s pullback low of $77.96 found support near a 78.6% Fibonacci retracement of the latest small upswing, at $77.21. Once the breakout area is successfully confirmed as support, traders can watch for further signs of improving demand.
Bullish Reversal Signals to Watch
If the head and shoulders pattern is to remain valid, silver needs to stay above the higher swing low and right shoulder of the formation at $71.98. Given the trend structure, a daily bullish reversal would not be indicated until last Tuesday’s high of $91.35 is reclaimed. However, Monday’s candle shows a bullish outside range. A one-day reversal is indicated on a close above Friday’s high of $84.98, while a stronger bullish indication would be provided by a close above Thursday’s high of $86.84.
Next Upside Targets
There have been two legs up from the $64.06 February bottom and the $77.96 low may mark the beginning of a third advance. Upside targets following a rise above the recent swing high at $96.43 are indicated near the 61.8% Fibonacci retracement at $99.67, followed by a 78.6% Fibonacci retracement at $114.49. It is interesting to note that the recent advance in gold completed a 78.6% retracement of the recent sharp decline before turning down last week, highlighting how the Fibonacci level referenced earlier in this analysis can influence momentum shifts across precious metals markets.
