Silver futures (symbol: SI) have experienced a large, yet choppy, sell off from its $49.82 high of Apr11. The movement down to $18.185 in Jun13 represents a 76% retracement, a common retracement target. After three plus years of consolidation, Silver has successfully penetrated the long running downtrend line from the Apr11 high.
Additional supporting indicators include moderating historical volatility, bottom-of-range stochastics, and reduced trade volumes during the consolidation phase. A successful breakout calls for a test of the $26-36/oz level.
The thin downtrend line on the chart below created an apex of support at the $18.185 level in Jun13. A second, bolder downtrend line has been drawn to reflect the breakout potential which typically forces a decision in trend. This week’s trade above the downtrend line is significant and suggests higher trade to come.
Critical support lies at the $18.185 level. Failure to hold the $18.185 level suggests a test of the $8.40 low from Oct08. Successful support at the $18.185 level suggests trade back into the $26-36 range, with stiff resistance expected at the $26.50 level.
Murphy & Co’s Silver model exited a short Silver Futures (symbol: SI) position at the $19.96 level, achieving a $0.90/oz gain. Murphy & Co’s Silver model currently holds no position. To learn more about Murphy & Co’s position models, visit http://murphycofutures.com/position-models/.