Since July’s 21.57 high, silver has been sliding persistently until the end of November when it dropped to 14.65 then rebounded sharply. This rebound sets the stage for a possible bottom at least for the short-term (couple of weeks) with risk of extending into the medium-term (couple of months). Let’s take a look at the long-term technical condition as we near the end of 2014.
Starting with the monthly chart, we can see that price has been bearish since the historic high of 49.78 set in 2011. This bearish trend is still intact, and there is no reason from a technical perspective to believe that this trend will end anytime soon. However, if the December monthly candle can close above 16.00, preferably above 17, then we would have an engulfing candlestick, which is a signal for consolidation or correction. Still, the monthly chart reminds us not to have such a strong bullish conviction. As long as the USD is still king, silver’s bullish outlook should be limited to the short, or at most medium-term.
In the daily chart, we do see some early signals of a bullish correction.
The 2 strongest signals were:
1) The strong rebound from 14.65, which suggests exhaustion of the medium-term downtrend.
2) Price then broke above the 50-day SMA and the falling trendline from July – the downtrend is no longer intact.
We should also note that price was able to make a higher high of significance for the first time since the downtrend.
However, the daily RSI is still holding below 60, which is a sign that the bearish momentum is intact, and if it falls back below 40, we should probably look for a sideways consolidation instead of a bullish correction. In this scenario, we would say the market is neutral-bearish. Also, note that price is holding under the 38.2% retracement level. So even though the downtrend seems exhausted, it seems like the bullish outlook is contained so far.
Crossroads: So, as we approach the end of the year, silver is in a bit of the crossroad. While the long-term outlook is still bearish, there is risk of some short-term, medium-term consolidation/correction. For now, if we buy in the consolidation/correction theory, we can look for upside risk towards 18.00-18.10, where price would be around the 50% retracement level.
This will most likely need the help of a weaker, or at least not-so-strong USD. Remember, last week, the FOMC had the market believing strongly about the rate hike in mid-2015, If XAG/USD is able to return above 16.00 after that USD-push, then, we should have more evidence of consolidation/correction risk in the beginning of 2015.
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