What’s inside:
- Silver spike pushes momentum reading into highest level ever observed
- Monday spike high could be challenged or overtaken, but looks unlikely to last
- Short-term wedge developing ahead of tomorrow’s US jobs report
Over a week ago we said silver had a complex technical backdrop given its short and intermediate-term uptrends heading into major long-term resistance, along with a futures market heavily long the metal. This left us with a feeling of risk without clearly visible reward.
Since then, silver spiraled upward through the 19 level we had penciled in as the top of major resistance created from 2013 to 2015. The two-day moonshot on July 1 & 4 has now left buyers exhausted at the moment, but sellers have yet to step in with aggression.
The 5-day volatility-adjusted momentum (VAM) model spiked to over 55 as of yesterday, the highest level ever observed. It edged the previous best of 54, registered only a couple of days before the 2011 spike high was cemented. We last discussed VAM back on June 9 after it climbed to 30, a level only achieved thirteen times since the 2011 high. We noted then, “Typically, such a powerful move in a short period of time led to further upside in the near-term, albeit often in a choppy-fashion as buyers exhausted themselves.” Later on, silver typically experienced a decline. This scenario played out in June for the most part. So far, as was the case then, momentum is stalling.
Silver w/VAM Daily
Despite the large spike-high reversal day on Monday, if the market fails to soon follow through with additional selling, then a brief consolidation period is likely to lead to a push towards the recent highs around 21, at the least. This would be consistent with how silver has reacted historically following strong short-term surges, but the nature of the spike and reverse on Monday leaves us in the camp which believes a retest or a slight new high may be all we should expect before seeing gravity take over. This is not a call for ‘the end’, but an extended period of pulling back and digesting the recent shot higher is certainly in order. A period of backing and filling or outright decline would help alleviate the excess of long speculative long positions in the futures market.
Daily
The price action over the past couple of days is funneling silver towards a resolution of the post-spike congestion. Should silver trade higher we will pay close attention to how it reacts on an approach of the Monday high. A break above will bring the July '14 swing high at 21.56 into focus as resistance. A breakdown will bring our attention on the 7/5 low at 20.45, then below there no material support arrives until around 18.50/19.
2-hour
High impact data event: Tomorrow’s US jobs report certainly holds the firepower to push silver one way or the other out of the wedging formation (assuming it holds through to tomorrow) should we see a substantial beat or miss. On average analysts are looking for NFP to come in at +180k for June, a strong rebound following the abysmal May print of only +38k. The unemployment rate is expected to tick higher to 4.8% from 4.7%, while average hourly earnings (gauge for inflation) is expected to climb to 2.7% from 2.5%.
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---Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX.
He can be emailed directly at instructor@dailyfx.com with any questions, comments, or concerns.
