- Rising wedge resolved to upside
- Rise looks exhaustive in nature based on price action and momentum studies
- Resistance at hand furthers case the current leg higher is nearly over, if not already
Recently, silver prices have been in ‘grind mode’ as it became short-term overbought, but during this period price action developed a rising wedge formation. These can make for great reversal patterns if the bottom-side trend-line is eclipsed as you catch longs, buying at gradually higher prices, off guard. However, if the bottom-side of the wedge, and in this case also the upper parallel we noted as critical support, isn’t broken then the result can be what we are seeing today, a sharp vertical rise. This advance cleared the prior identified resistance levels with relative ease.
The outcome of these sharp upward moves out of ascending wedges tends to lead to an exhaustion move; and this line up well with the fact we have resistance hand which silver is currently reacting to. The prior peak in early May is 17.99, but taking a closer look at an intra-day time-frame we can see silver actually began struggling in the 17.80s up to 17.99 (let’s call it 18). Today’s high so far is 17.84. There is also a trend-line running back to the Jan ’15 peak over the May high, which, depending on how precisely you draw it, stands between here up into the 17.90s. The 17.70/18 zone employees horizontal resistance from May of '15 and '16.
Not long ago (last Thursday) we looked at a momentum indicator (Volatility-adjusted Momentum – VAM) which indicated the initial thrust off the June 1 low should lead to follow-through given how much buying pressure we were seeing.
That worked out well, but as we also noted in the June 9 commentary: “However, after those gains were notched the trend became exhausted and turned lower.”
All-in-all, as we can see, between market tendencies observed from price action and momentum coupled with the fact we have resistance levels at hand, the case has become quite strong for a reversal to take shape starting very soon, if it hasn’t begun already.
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---Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX, and/or email him directly at firstname.lastname@example.org.