FX.co ★ NTFX | XAG/USD, SILVER

Silver has been firmly in a very strong bullish period, although recent market trends indicate that the market is now in a more speculative and precarious state. The wider construction on the larger timelines is distinctly bullish, and the price advances at an exceptionally brisk rate out of the preceding levels of consolidation into a near-parabolic move. It is a matter of aggressive involvement by buyers and high conviction in the trend, but it also has a higher probability of having a high risk of sharp corrective actions as soon as it starts to decelerate. This tension of trend continuity and exhaustion can be observed by the recent volatility around the $108 area. Structurally, there is no structural damage inflicted on the long-term trend since silver keeps recording higher highs and high lows. The rally which went up to the $118 area was a new extreme in this bullish run and a tremendous expansion of the upside of the former levels of resistance. This breakout period was impulsive and rapid, leaving very poor structural support in the upper price area. In such a direction of price movements, pullbacks may occur abruptly and drastically because there are less developed areas of consolidation to absorb selling pressure. The recent move on the daily close of about 108.52 on failure to maintain prices on top of 118 is of technical importance. The fact that the high of the move was formed with a large shooting star candle would indicate that traders tried to drive the price high and were met by aggressive selling to strength. Such a candle formation can be explained by fatigue in high levels particularly when it is observed following a prolonged gain. One candle is not a good indicator that a reversal has occurred but rather indicates that the upside momentum is no longer a one-sided affair as it was previously during the trend. Although this is a bad omen, the trend structure is yet to be broken. Price is quite high as compared to past breakout areas and higher lows have not been broken. It is now considered a critical short-term point of support with the rebound of silver in the range of $103-105 occurring intraday. The first level where buyers receded in following the recent pullback will be this zone which will be closely observed to confirm demand. Price must stay above this area in a closing basis to maintain the larger picture bullish structure as true. The near-term resistance level is the $110 mark. This level is psychologically significant and it coincides with the recent congestion after the withdrawals of 118. A prolonged pause and close above 110 would indicate that the buyers have recovered back to control and may also make another attempt to push to the previous highs. But the inability to reclaim this level augurs more towards the probability of the current move becoming transitioning toward corrective, which means that the price will likely tend to spin downwards in an attempt to find further support. The structure stages below the mark of 100 underline a vital level of structure. This round level is the lowest part of the last impulsive leg higher. A clean break under 100 would be a major technical occurrence as it would indicate that the parabolic period of the trend is probably over. This would also suggest that the buyers who joined late into the rally are being forced out and this might increase downslope the pressure. At the time price has fallen below $100, the next material support is at 96.14 which is the intraday low of January 23. This level is of structural significance since it is the final significant higher low prior to the vertical acceleration stage. The test of this zone would be a further correction but would nevertheless be in the context of a larger bullish trend, so long as price levels and is not exceeded. The next line of downside support is close to $90.46, the January 21 swing low. Such level is the foundation of the latest significant breakout and a major reference point to the medium-term trend integrity. A fall in this direction would signify a significant reversal of the recent buoyancy and probably would change market sentiment to a less aggressive bullish to more neutral. But the bottom line is until the price acts decisively below this point then the trend of the long-term would still be intact technically. The price-momentum discrepancy gives a significant dimension to the technical image. Although the price is still showing larger peaks, the momentum indicators are not showing that they are being made and it can be questioned that the buying pressure is being consumed behind the scenes. Such deviation also tends to lead to corrective stages as opposed to instant reversal in the trend. The divergences in such strong bull markets can last a long time, although the more the divergence, the more likely the subsequent sharp pullbacks once the selling pressure starts to take off. The present price action indicates that silver can be in a distribution or consolidation stage instead of the reversal stage. The parabolic trends do not normally reach their destination quietly but mostly unwind themselves in an increasing volatility, excesses and intersecting candles. This seems to be in line with the recent intraday range growth of between 103 and 108 that is contrary to the previous smooth upward movement. In brief, silver is still in a strong bullish position, though technicals are getting overstretched. The level of resistance should be near 110 to be reclaimed in order to keep the upside story and the support stands at 103 and 100 that should be considered as the level between continuation and correction. Further below, 96.14 and 90.46 are also key structural underpinnings that will either indicate any pullback is corrective or develop into a larger trend shift. So long as these lower levels are not broken the long-term bullish formation exists, but traders ought to anticipate more volatility and much more retracements as the market digests the recent parabolic gain.