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Silver Price Action First and Foremost, USD Secondary

Silver Price Action First and Foremost, USD Secondary

2016-11-17 12:51:00
Paul Robinson, Strategist

What’s inside:

  • Silver remains capped by resistance
  • Will we see a redux of October and how silver and the dollar played out?
  • Focus is on silver first, dollar second; short-term trend-line becoming a focal point for execution

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The price of silver remains contained in the low 17s, respecting resistance between June and October. As we said the other day, if silver continues to hang out below resistance, with another round of selling, there isn’t anything to the left on the chart until around the 16 level.

Even if the June/October resistance level is to be reclaimed, there is overhead supply to be cleared before silver can gain traction. The bottom and top-side of the October triangle in the 17.30/90 vicinity lies in the way.

A question some might be asking, are we in for a redux of October in respect to how the dollar and silver play with another? During that period, after plunging nearly $3, silver went on to form a triangle below resistance while the dollar kept on rallying. The eventual outcome was an upward break in silver and drop in the dollar.

The 21-day correlation between silver and the dollar is back below -80%, a strong reading. It could stay this way for an extended period of time as it often times does, or the relationship between the precious metal and currency could come back in line without warning. Correlations, in our view, are best viewed secondary given this on-and-off relationship. Through much of October while the dollar rallied sharply, silver was sharply unchanged. All it took was a solid dollar sell-off to spur silver out of the multi-week triangle. Which brings up a point worth making: One didn’t even need to know what the correlation was with the triangle in place to provide guidance (go with the break).

With that said, our focus is on silver first, dollar second. If we see bottoming-type price action in silver and the dollar continues to rally, perhaps we will be in for another replay of the period we just went through. Conversely, the dollar (DXY) could decline from over the 100 level (13-yr highs) while silver sits dead-in-the-water. This would suggest market participants don’t care about the dollar. In any event, we will run with what silver is telling us first and take the relative performance into consideration on a secondary basis.

Silver/USD: Daily

Silver Price Action First and Foremost, USD Secondary

Created with Tradingview

Looking at silver in a bubble, a little closer. There is a short-term trend-line forming off the 11/14 low, most visible on intra-day time-frames. This development comes as price struggles at daily resistance. For those looking to establish a short position, waiting for a break of the trend-line is a prudent approach. The more touches the trend-line receives, the more important it will become. A break right now wouldn’t be as meaningful as a breach following a few more inflection points. As long as the trend-line holds a series of higher lows will continue to form, also giving us reason not to be aggressively short until a break occurs. For those looking for recent lows to hold, keeping this trend-line in mind will be helpful in working a long-biased game-plan.

All-in-all, we maintain our outlook that current price action is corrective in nature and at some point sellers will show up again. The eventual target on further weakness remains the 16/15.80 area. As always, it will all boil down to execution. The groundwork is being laid.

Silver: 60-minute

Silver Price Action First and Foremost, USD Secondary

Created with Tradingview

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---Written by Paul Robinson, Market Analyst

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