- Silver price is pulling back from upper parallel of channel in place since July
- Currently testing support by way of the June peak, lower parallel holds the real key
- Possible ‘fly in the ointment’ may be gold futures positioning, but letting price action dictate outlook
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Silver prices recently found resistance at the upper parallel tied to the trend-line off the July low. The pullback so far has been constructive and doesn’t indicate a market which wants to go into a full-reversal. In short, a healthy pullback. The past couple of sessions (today not finished yet, of course) we have seen silver find support around the June high which it surpassed to start the month. If we see a shove higher from here, then the lower trend-line may not be tested before seeing another attempt at recent highs.
If, however, we don’t see it hold then our attention turns to the lower parallel of two-month long channel. In our view, this is the more important line of support to hold to remain short to intermediate-term constructive. A break below doesn’t mean the upward trend is over, but it would bring pause and give shorts a reason to get more aggressive. Looking higher, the first obvious level to break above is the recent swing-high at 18.29. Beyond there we’ll look for a move towards the April high at 18.65.
A possible ‘fly in the ointment’ for higher prices is the futures positioning in not the silver market so much, but in gold. As we pointed out in last week’s COT report, large speculators (i.e. hedge funds, CTAs, etc.) have added to their long position at a pace which in the past has turned out to be problematic in the intermediate-term. Further price appreciation has been seen in similar situations in the short-term only to be given back. If this is the case this time around, then it is highly unlikely silver makes a meaningful advance without gold doing so as well. It’s a factor we’ll be keeping an eye on moving forward, but for now we’ll let price action be the final arbiter in determining our outlook.
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---Written by Paul Robinson, Market Analyst
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