Silver (XAGUSD) Price Forecast: Bullish Structure Intact After Sharp Pullback

Inside-Day Breakout Signals Short-Term Strength

Silver rallied from a 10-day average support zone on Monday to reach a three-day high of $77.90. A breakout from an inside day also triggered and will confirm with a daily close above Friday’s high of $74.57. The three-day breakout will confirm with a daily close above Thursday’s high of $76.15, while near-term support is at Monday’s low of $72.94, a higher daily low and around both an uptrend line and the 10-day average.

10-Day Average Anchors Higher Swing Low Potential

The 10-day average represents a key dynamic support area for the short-term trend, established following the November swing low at $48.64 (C). It has been successfully tested as an area of support the past week during the short decline following the $84.03 record high in late December. Support for the pullback was seen at a low of $70.39. Monday’s bullish signs show the potential for the low to establish a higher swing low once there is a daily close above $76.15.

38.2% Retracement Completion Supports Bullish Bias

Silver’s price action confirms dynamic support for the short-term trend and the pullback completed a 38.2% Fibonacci retracement at $70.39. A continuation of the bullish recovery is anticipated unless the 10-day average fails as support. Signs of strength following a rapid decline to the 38.2% Fibonacci retracement zone is bullish price behavior as it generally represents a minimum anticipated retracement in Fibonacci analysis. Once the retracement is complete the stage is set for the bulls to take back control and demand represented by the underlying trend to reassert itself.

Bearish Reversal Near High Tempers Momentum

There is some risk that bullish momentum may not be strong enough to push silver to a new trend high before a greater correction. Once a new peak for the trend was reached at $84.03, selling pressure greatly increased and resulted in a bearish outside day with a close in the lower third of the days range. This is bearish behavior that also resulted in a weekly bearish candle last week.

Extended Gains Place Silver Near Critical Resistance

Increased selling pressure represented by candle formations suggest that a new trend high may not occur quickly, even though the trend structure shows that it might. The high day completed a couple of extended target levels and was therefore in an area of potential resistance. Moreover, at the high silver was up by $29.79 or 54.9% from the most recent bull breakout level of $54.49. This puts silver in a critical location given key support and its new approach towards the $84.03 record high.

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