Silver (XAG/USD) – Trading the ABC Correction Scenario

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Silver (XAG/USD) - Trading the ABC Correction Scenario

Silver, priced in the USD,  has been bullish in June, until hitting 21.57 in July. After that there was a sharp slide that engulfed the previous 2 weeks of consolidation and fell to 20.58. Yesterday (7/17), we saw silver rally to the 21.25 area and find resistance there.  The 4H Chart shows a market that has retained a bearish bias, and could be setting up for another leg to this week’s bearish correction.

Silver (XAG/USD) 4H Chart 7/18
silver 4h chart 7/18
(click to enlarge)

1) Price has fallen below a rising trendline since June.
2) The rejection at 21.25 shows bears are now in charge and that the previous swing to 21.57 is an exhaustion swing, and the market could be due for a bearish correction/consolidation.
3) The RSI has tagged 30, then failed to push above 60. This reflects maintenance of the bearish momentum in the 4H chart, in the short-term.
4) Another bearish swing similar to the length of the 21.57-20.58 swing would target the 20.25 area. We can see some key support factors just below that ABC projection (a correction pattern when A = C).
5) 50% retracement: 20.10
6) 61.8% retracement: 19.76
7) Resistance pivot at 19.89

Reward to Risk: A failure to break below 20.58 and a push above 21.25 should shelve the ABC correction outlook. Let’s say we wait for silver price to come back to 21.10 and plan an entry there. A stop above 21.25, ie. 21.40, would show a risk at stop-low of 30 points. If the target is to 20.25, the potential reward is 75. This offers us a 75:30, or a 2.5:1 reward to risk ratio.

If this ABC correction scenario does materialize price approaches 20.25. Look out for buyers there.

Silver (XAG/USD) Daily Chart 7/18
silver daily chart 7/18
(click to enlarge)

1) Looking at the daily chart, we can see that in the 20-20.25 area resides the 200-, 100-, and 50-day simple moving averages. They can been as support at least in the short-term.
2) Price has broken above a falling trendline going back to August 2013’s high of 25.12.
3) The RSI has tagged 80, which reflects strong bullish momentum. If it can hold above 40 again, then the market is likely turning bullish. This has not been confirmed yet and the RSI could very well be swinging from overbought to oversold levels as it has done since the end of 2013. Still the possibility of a medium-term uptrend after the trendline breakout is favorable.
4) If the 20.00 handle does hold as support, the upside risk in the short to medium term will be 22.18, the high on the year.

To contact the reporter of this story, email Fan Yang at fan@forexminute.com
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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.