The rapid run up in Silver prices from the October 2008 low of $8.22 to the April 2011 high of $49.82 saw prices have a major selloff that has now finally stabilized around the $18 level. While price appears to be steadily consolidating, the downward pressure remains high as bearish bets grow on options and future contracts. 2013 was a record year declines and continued weakness remains strong on precious metals mainly because the Fed began the tapering of its asset purchases.
A rebound is overdue and macro investors may help trigger a reversal as concerns remain high for the situation in the Ukraine, inflation may return to spotlight for central bankers and prices on metals are inexpensive.
Price action on the daily chart is highlighting a potential bullish ABCD pattern along with major oversold conditions with our stochastics indicator. If valid, traders may see a rally target $20.85, which is where the 200-day SMA is currently trading at. Further upside may come from the 161.8% Fibonacci expansion level of the C to D leg at $21.30. If price breaks below $19.20, we may see a little more downward pressure target $18.50, with major support coming from the $18.00 handle.
The trade: Buy Silver at $19.60 with a stop loss at $19.20 and a take profit at $20.80. The Risk/Reward Ratio is 1:3.
Edward J. Moya
WorldWideMarkets Online Trading