Let’s look at the upside first and resistance. The first resistance is the 200-day moving average at $68.14. Overcome this and we could see a short-covering rally into a resistance cluster formed by a long-term retracement level at $74.63 and the 50-day moving average at $75.56.
The nearest downside target is the March 23 bottom at $61.00. I don’t think this price was the primary objective at the time. I think traders were gunning for $60.83, or 50% of the all-time high at $121.67.
$59.34 comes into play as potential support because it was the breakout level on December 5 that launched the start of the vertical move in December and January. Under this level, we have to go way back to the October 28 main bottom at $45.55 before we find true main bottom support.
Don’t try to pick a bottom during a freefall, but only if you have a “lean” or natural exit to the left like $61.00. As always during a prolonged move down in terms of price and time, the best bottoming pattern will be a dramatic closing price reversal bottom in my opinion.
What to Watch
Silver sold off all week into the CPI and PPI releases. Both reports confirmed that inflation is running hot on the headline, but the energy shock from the Iran conflict is responsible for most of the damage. Core readings came in below expectations on both reports. The Fed is not cutting. The ECB just hiked. Both developments were priced into silver before they happened. The fact that the metal is green on the day the PPI and the ECB rate hike landed tells you the sellers ran out of ammunition.
My read on this is the 200-day moving average at $68.14 is the first real test on any bounce. A short-covering rally could carry silver into the resistance cluster at $74.63 to $75.56, but only if real buyers start taking out offers instead of just bidding.
On the downside, $61.00 and the 50% retracement at $60.83 are the levels that matter. Below $59.34 the picture gets ugly fast with the next real support at $45.55. The selling happened before the data.
The data landed and silver held. That is how bottoms start to form. Whether this one holds depends on next week’s FOMC meeting and whether the Fed signals something even more aggressive than what the market already expects.
More Information in our Economic Calendar.
