Silver closed down $.11 for the day at $29.20/oz however recent candlestick formations are indicating that price activity is almost done consolidating off of the top which was set last week at $30.67/oz.
The first thing that stands out is the symmetrical triangle (or wedge) pattern that has formed during this brief consolidation period. The pattern consists of at least two lower highs, followed by at least two higher lows to form a triangle that points sideways. This pattern is a bullish indicator and is a sign of an upcoming breakout.
The key technical instrument in the silver market is the 20 Day MA. Using the 20 Day MA in combination with the triangle, we can see where price activity is likely to meet up before breaking out again. It appears that we may have yet another down day, followed by a relatively flat day (or vice versa) to end the week. That should translate into a bounce off of the 20 Day MA to start off next week . At the same time, the upper channel on the triangle will be pierced and price activity should close above that trendline to complete the formation and confirm the breakout.
Same story on the ETF SLV – 20 MA provides temporary support, symmetrical triangle has formed in succession with spot silver. However, there are other things that stand out on this chart that you cannot see with the spot chart. For example, the volume that has been present for the last two trading sessions (both down days) has weakened. If the trend is a consolidating trend where price activity moves sideways, such is the case with silver, then weakening selling volume tells you that the price is nearly done consolidating. Also in support of bullishness for silver is the five consecutive hammer candles that have appeared over the last five sessions. Single day candle formations alone are not enough to base a trade on, but in this case, where five appear in a row and with the other variables that are listed above, it adds a considerable amount of weight to the case from the long side.
As soon as the price closes above that upper price channel of the wedge, I expect silver to make a run at $32/oz and perhaps reach it by the end of January. Regarding gold – I mentioned that I expect it to take longer to recover than silver and I am sticking to that however I want to remind everyone that the Chinese New Year begins on February 3rd, 2011. I believe that I predicted that gold will correct until the middle or end of January before making a run at $1500… perhaps that prediction will come true and the consumption from the Chinese New Year will be the catalyst for another round of buying pressure in the gold market. In any case, it’s an interesting thought so we’ll have to keep a close eye on things. Right now the most important thing to watch regarding gold is the 50 Day MA which the price continues to hover above. If that moving average breaks down, then my forecast may come true, if not, then it will have to close above $1430.60/oz to confirm the next breakout.