Silver markets have fallen quite hard during the last several sessions, with the Friday session being particularly brutal. However, when you look at the big picture, it doesn’t take much imagination to see that we are still very much in an uptrend. In fact, the recent move might be exactly what the bulls need to continue the uptrend in the long run. After all, no market can go straight up forever.
The silver markets are still supported on several fronts. The 50 EMA is sitting just below current pricing in the front contract and is also sitting just above the 50% Fibonacci retracement level. Adding to that area’s importance is the clustering (i.e. order flow) that has recently been seen at that area. In fact, it is where we have seen the latest impulsive move higher start. In this sense, we have come round trip from the overexuberance in this market.
In August, the silver market gained 15%, which of course is overbought on just about any metric you measure it by. Because of this, a fall was almost certainly prescribed. The weekly candle from two weeks ago formed a massive shooting star that fell short at the psychologically important $20.00 level. All things lined up for the pullback that we are seeing now.
All things being equal, the Federal Reserve will cut rates this coming week. While that isn’t going to be a big surprise, a lot of traders will be looking to see just how dovish the bank is. The more dovish sounding, the better it is for silver as traders will then begin to focus on wealth protection. Beyond that, it seems likely that the US/China trade war, although cooling off lately, will flare back up sooner rather than later. The demands are simply too far apart at this point, despite the goodwill gestures we have seen.
Between those reasons and the technical analysis, I will be paying particular attention to the $17.00 area for signs of a bounce, or at least stabilization. The area should attract a lot of attention due to the round figure, market structure, and the technical reasons I previously stated. After all, the trend was overdone, but that doesn’t mean over. Silver remains a buy, but like anything else, I prefer to buy it when it goes “on sale.”