Silver (XAGUSD) Price Forecast: Exhaustion Signals Pullback After Record High

Record High Triggers Bearish Outside Day

Silver reached a new record high of $84.03 in the spot market on Monday before buyer exhaustion kicked in. Sellers took control following the new high, driving silver down to below Friday’s low of $71.85 to a low for the day of $70.52. A session closing below Friday’s low will establish a bearish engulfing pattern. Regardless, a bearish outside day has already been generated and puts silver on the fast track to test support near the 10-day average.

10-Day Average and Trendline Mark Key Support

The price of silver got overextended on Friday and again on Monday. This can be seen by the distance at the high from the 10-day moving average, as well as in the Relative Strength Index (RSI) with an 87.43 reading on Friday – the highest overbought reading since 2020. That 10-day average is converging with an uptrend line and is now at $69.18. Dynamic support near the 10-day line is the first area of defense for the bulls.

It has represented support for the uptrend since the average was reclaimed on November 26. Subsequently, a six-day sideways correction was completed following a tag of the 10-day average as support. Given the convergence with the trendline it currently takes on added significance as the two lines together show strong support for a possible bounce, while a break below it will indicate failure of the first key support zone for the short-term bull trend.

Overextension Signals Momentum Exhaustion

Another indication that the price of silver is overextended is seen by the two indicators that point to potential resistance near the high. Silver had gained as much as $29.79 or 54.9% as of Monday’s high since the new high breakout from $54.24 only a month ago. The advance from the November swing low (C) triggered a successful breakout of a rising parallel trend channel. That showed a more aggressive advance given the spike in bullish momentum and therefore a greater risk of reaching exhaustion. Monday’s bearish price action is a clear sign of such exhaustion. This means additional corrective price action is likely to follow, either as choppy sideways movement or a deeper pullback.

Long-Term Indicator Confluence Caps Upside

There is the confluence of two long-term indicators at $83.40 and $84.00. The clear bearish reaction following Monday’s $84.03 price level shows resistance. Each target is an expanded measurement and indicates overextension of price. First, there is a 423.6% (261.8% + 161.8%) extension of the October bearish correction at $83.40. A 400% projection of a rising ABCD pattern follows at $84.00 and closely aligns with the actual high. Signs of selling at the confluence of two indicators suggest that the bull trend is likely to take a rest, at the least, if not result in a notable correction.

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