Silver Fails Resistance Test On Low Volume

Many (myself included) had expected a break through the 30 year high to happen either today or yesterday, though both tests of resistance levels failed however yesterday we did have a 30 year closing high. Despite the break through the recent flat trading range, silver has yet to fully confirm the breakout by closing above the previous high. Volume is a concern as it has not been substantially high which is an indicator that the price is not yet ready to move higher. There is however, case from the bullish side.

It seems that the RSI as well as slow and full stochastics are presenting a bearish case as price activity has immediately forced the oscillators close to the overbought level of 80. However, over the last 2-3 weeks, those oscillators have diverged somewhat from price activity – indicating rising momentum when in truth, the price had remained relatively flat throughout. The 5 day period oscillator should level out beginning tomorrow as it will line up with the most recent changes in price. In any case, if the market deems silver overbought from a technical perspective, it still has plenty of room to move to the downside without breaking that 20 Day MA. Also, with the recent volatility, the oscillators will quickly fall to oversold territory if the price closes lower or remains flat for the next couple of days.

The other concern I have is the decreasing volume. The breakout has to be confirmed with volume and it simply has not been there. As of right now, I see one of two scenarios playing out:

The first is silver makes a new 30 year high and closes above it tomorrow, and on monday gaps higher and makes yet another 30 year high. Then, next tuesday it would gap higher on the open and close lower than the lows it made on monday – making for another key reversal.

The second scenario is it closes lower or flat both tomorrow and monday before picking up momentum in the middle of next week and then making another run at the 30 year high. If it fails another test of the 30 year high, then I believe momentum will have officially declined, and the support trend will be in question. I won’t be able to tell which scenario is more likely until tomorrow as the indicators on the chart are pointing in different directions.

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About Aaron Basile
Market Technician, Equity/Commodity Trader, Austrian Economist, Contrarian Investor

2 Responses to Silver Fails Resistance Test On Low Volume

  1. Jason Burack says:

    Aaron,
    Silver closed well above 30 on higher volume. Breakout confirmed??

    Almost up a whole buck today. 2011 will be a great yr for Silver me thanks! I expect Silver to continue to outperform gold on a relative % basis.

    • aaronbasile says:

      Silver is bound to outperform gold, it has an extreme deficit and is consumed rapidly. Silver will likely hit $50 by the end of 2011, that’s if the current trend stops – because at this rate it’s likely to hit $70 by the end of this year.

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