SILVER TODAY – Prices find support but rebound finds resistance

Dec 13, 2016 - 9:30 AM GMT
by
Short Term:
Medium Term:
Long Term:
Resistances:
R1 16.73 20 DMA
R2 17.09 Former support
R3 19.00
R4 20.06 Sept 22 peak
R5 20.13 Sept 6 peak
R6 21.13 High so far
R7 21.60 July ’14 peak
Support:
S1 17.74 UTL(broken at)
S2 16.73 20 DMA
S3 16.50 61.8% Fibo
S4 16.17 Low so far
S5 16.14 March peak
S6 15.82 May low
S7 13.64 Dec low
Stochastics:Bullish, but choppy
Legend:

DMA = Daily moving average

RL = resistance line

UTL = uptrend line

H&S = head-and-shoulder pattern

Fibo = Fibonacci replacement line

Analysis

  • Silver prices appear to have found support at $16.17 per oz. The metal put in a strong performance on December 7 and is consolidating those gains now.
  • The stochastics are bullish but have become quite choppy. We wait to see if there is follow-through buying interest around. 
  • Prices appear to have run into resistance above $17.20 per oz, which was around the level of the former lows from early October.
  • A move up above the $17.25-17.50 range may be needed before silver prices look less bearish.

Other factors

Industrial metals, especially the base metals and palladium, have benefited from the stronger economic outlook so we are surprised silver prices have been dragged down as much as they have by the sell-off in gold price. The common denominator is poor jewellery demand but, with the economic outlook improving, perhaps jewellery starts to recover.

The strong dollar has weighed on prices but the dollar is showing signs of tiring now – perhaps the run up to this month’s FOMC meeting, which concludes on December 14, has been a buy-the-rumour-sell-the-fact set-up ahead of a likely US interest rate rise. 

The downward trend in the CFTC’s net long fund position (NLFP) climbed 325 contracts last week – the first uptick since November 8 – via 2,010 contracts of fresh buying, making this the second week of buying in the past ten weeks. Shorts added 1,685 contracts, which was the first fresh shorting in for six weeks. The gross long position is now in mid-range and the gross short positions is in low ground, which means direction from the funds could come from either direction.

Conclusion

The sell-off has been severe. We are surprised that bargain-hunting has not stepped in before now. Prices seem to have built a base and are now challenging likely resistance levels. If a base is seen to be in place, the market might start to focus on the political uncertainty that lies ahead once an interest-rate decision is out of the way.

All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.