Silver Tests $30 For The Third Time – Is It For Real?

Silver opened and closed today at 30.18 which was also the closing price of yesterday. There is a sense of struggle here as spot is fighting to stay above $30 as it had previously failed to do so in the past on two separate occasions. SLV closed down $.06 but made a nice run off of the intraday lows and the low volume of just over 13K adds to the indecision factor here in the market.

$30 Support Holds

I received some Morgan Dollars in the mail today, and I am happy that I locked in my price before the breakout on Tuesday. Outside of the fundamentals which include the shortage of 100oz bars, open interest at the COMEX, and the continued short covering on the COT reports, there are technical reasons as to why $30 should remain as support.

The first reason is the long bullish candlestick from Tuesday’s price action that broke throught the $30 resistance. The long candlestick is a decisive indicator that price activity is justified. I admit that I did not see this coming at all, but no one else predicted Bank Of Armageddon (or whatever) would implode that morning either, which served as a catalyst for gold and silver. I was right though in that we might hit some resistance in the middle of the week because we are nearly in uncharted territory and slightly overbought in the short term. I think that this is evident in how for the last 2 days silver has not maintained the momentum that it has carried for the last 2 weeks and I expect us to test $30 on the downside a few times before carrying on.

The next reason I have here is the cup and handle formation that is playing out. This is the first real correction since August and it confirms the consolidation and confirms that the silver trade is not overcrowded yet. With a high of $31.21, a low of $26.38, and the breakout at $30, the next price target for silver should be $34.83. The breakout point isn’t exact and the price targets on chart patterns are rarely 100% accurate but it’s safe to say in my opinion that it will get close to $35 within the next month.

If I’m wrong and this thing breaks down, we’ll wait for the market to give us a bullish engulfing candle on the downside. If you’re trading SLV, you want your stop at about $28.90, or perhaps $28.75 if you’re comfortable. However, I believe that the market has already given us plenty of buy signals since the bottom 2 weeks ago from both the fundamental and technical perspective and I think that now is certainly a safe time to open long positions.

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

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