I thought it was time to take a detailed look at the silver market once again today, as it’s a while since my last post on the metal. Gold of course grabs all the headlines, but silver is potentially just as profitable for traders and speculators. So where are we technically with silver? Let’s take a look at the daily chart, and as you will see, I have included both the standard volume at the bottom of the chart, along with the volume at price, on the left hand side, which gives us an entirely different perspective, and also reveals in a graphic way, the depth of buying and selling volumes in the various support and resistance areas.
So let’s begin with the technical picture for silver, starting with the price action, and the key here is the sideways congestion which extended throughout March, and was finally breached earlier this month. The breakout lower for silver was a significant event, and one which cannot be underestimated. Prior to this, the congestion of March had suggested that we might see a break to the upside, with the support and resistance levels clearly defined by the pivots above and below.
This channel of price action centred between the $29.50 per ounce level to the up side and $28. 25 per ounce to the down side. But the breakout of early April signalled further bearish momentum, and was duly validated with above average and rising volume on the move lower – not a great signal for silver bulls. This selling pressure was duly absorbed this week with a minor rally higher on good volumes, and given some additional momentum from the pivot low. Worryingly, Wednesday’s wide spread up candle, whilst supported with a high volume bar, failed to follow through yesterday, running into resistance in the price congestion of March in the $28 per ounce area. However, note yesterday’s volume and price. High volume, but a narrow spread down candle, suggesting price support and buyers in at this level.
What is also interesting is a comparison of the volumes in the two recent price waterfalls. The first towards the end of February, was associated with extremely high volumes, suggesting stopping volume at this level. The second waterfall of early April saw lower volumes through a comparative spread of price, suggesting that maybe, just maybe, the selling was gradually being absorbed at this level. After all, no market reverses on a dime, and just like the oil tanker when the engines stop, takes time for that momentum to dissipate before turning. The markets are no different.
So, moving to our volume at price, the key point to note here is the extent of the volumes associated with the congestion zone of March. This is clearly a significant area with the deepest concentration of volumes over the period of the chart, (approximately 9 months).
This is both good and bad.
If the silver market does finally manage to re-test this region in due course, and break higher, then this will provide a wonderful springboard for any bullish momentum. Alternatively of course this is a solid wall, and will require a huge effort to breach. Volume as always will hold the key, and if we are to see any sustained recovery for silver, we need to see two things. First sustained and solid volumes on any up days, and narrow spread down candles with above average volumes, as we saw in yesterday’s trading session. Second, we need to see this deep congestion level breached with a clear break and hold above.
In summary. The silver market, like gold remains weak, and certainly from a technical perspective this is the case for the time being. However, the relative falling volumes in the price waterfalls, may have given us the first hint that the oil tanker is starting to lose some of its bearish momentum, and slow down, possibly to a stop. Volume and volume at price will reveal all in due course. As volume traders we have to wait, be patient and look for any sustained buying climax and a subsequent follow through in a reversal.
By Anna Coulling
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