Metals Momentum
After 11 weeks plus of consolidation, silver is breaking out of it's tight trading range to the downside. I've always considered consolidation kind of like the gunpowder before a shot, or, if you have a pot of water boiling with a lid on it, when the lid is removed, it's going to have some steam behind it! The longer the period of consolidation, the bigger the breakout is going to be. Any readers that would like to discuss or see further examples of consolidation's effect on a market, feel free to contact me. For now, let's take a quick look at what silver's been doing on the daily chart.
Today, we saw a high percentage, high volume breakout of the trading range. Also the moving averages are rolling over. It's important to understand that silver has traded outside of it's range a couple times in the past. It has even settled below and broken out of the range early in it's consolidation. Immediately afterwards, silver went back into it's trading range of $30 - $35/oz. Just because a market breaks out of it's range does not guarantee there will be follow through. As demonstrated in these earlier examples, a breakout could be a head fake and return quickly to the trading range. Before making a trade decision and either closing your longs or opening shorts, you need confirmation of the breakout, i.e., follow through selling. If silver does not return to the outlined trading range or bounce above $30/oz, then we have confirmation of a breakout and we can expect to see some more selling happen very quickly. The HUGE spike in volume implies that there is a crowd behind the selling pressure.
It is difficult to determine a fair target or where the next nearest level of support is. This is because silver did not trade in the $20 - $30 range for very long on it's way up and therefore did not have an opportunity to develop much support. My gut tells me $25 due to the minor support shown on the weekly chart and also the psychological support and resistance that the crowd puts on whole numbers.
Think about gold trading between $300 - $500 for 25 years before breaking out of it's range in 2005. 25 years of consolidation has resulted in a major price change in the past 6 years for gold. Think about summer 2010, where silver traded between $17.50 -$18.50 for months. A very very tight trading range of only a dollar and four months of build up with a breakout the first week of September led to silver jumping to $49/oz. Consolidation is fuel to a fire, and a breakout of consolidation has always been one of my favorite and most reliable trading patterns. Combine high volume on the breakout with moving averages rolling over and silver failing to break the top end of it's range multiple times, and I believe the third wave of selling Ive been looking for has arrived. Best of Luck! AJL
Adam Laigo
Semper Pacific Wealth Strategies
metalsmomentum@gmail.com
Twitter: @PrcsMtlsGuy
