Silver markets went back and forth on Wednesday as we are threatening the $23.50 level. We even broke down below there quite drastically, but then turned around to show signs of stability. This is interesting considering that the previous candlestick was an inverted hammer, one that should kick off further negativity. However, we had been a bit oversold, so it does make sense that perhaps we will see value hunters come back into the market.
This does not necessarily mean that you need to get up to your ears in silver, just that it has been a bit overdone. Keep in mind that the $24 level is an area where we have seen action previously, so one would think that a certain amount of “market memory” could come into play in that general vicinity. That could be a bit of a short-term ceiling, but even if that is not, the 200-day EMA above will more than likely will come into the picture as well. That is only $0.30 above the $24 handle, so one would think that the upside is somewhat limited, unless, of course, something changes quite drastically.
With the US dollar strengthening the way it has, it does make sense that we have seen silver take it on the chin. After all, there is a huge negative correlation between silver and the US Dollar Index, which is currently screaming higher. With that being the case, I think we will continue to struggle in the silver market. However, the rally could be rather nasty, and I think it is probably a nice short-term buying opportunity if we break above the top of the candlestick.
At this point, silver looks as if it is due for a bounce, but if we were to break above the 200-day EMA, then it is likely that the market could go much higher. At that point, the $25 level could be targeted, followed by the $26 level. It will be interesting to see how silver behaves because it is such a volatile instrument to begin with. Whatever gold does, silver will probably move in the same direction, but much more drastically. In this scenario, the bounce could be brutal, but there is still a lot of noise above.
