The silver market continues to be very noisy, as we are looking to figure out whether or not the markets can turn things around.
Silver
Silver has pulled back a bit during the trading session here on Tuesday as we continue to hang around the 50-day EMA. Keep in mind that silver was just bludgeoned half to death on one specific candlestick a couple of Fridays ago and that's not the kind of thing that a market bounces back from easily.
With that being the case, I think you have to be very cautious here and I would anticipate more trouble, not less. As you can see from the chart, I have an area between $70 and $90 marked as a potential rectangle. We are currently at the $80 level, which could be fair value. Volume is dropping and that's something worth paying attention to as well and really the $90 level has been like a brick wall.
Potential for Further Downside
I think the most bullish thing that can happen right now is that this market goes sideways for a while. In a sense, one of the worst things that could happen is that silver suddenly takes off to the upside because then you have another runaway market potentially and you do not want that.
Quite frankly, there were signs of trouble a couple of weeks ago when dealers were refusing to buy more silver. Some were reporting having 20 sellers for every one buyer. In that type of environment, something had to happen and of course, this is the result. I don't know if silver drops below $70 again, but it certainly looks like it's going to give it the old college try. If we break down below $70, I suspect silver drops to $50 pretty quickly. $50 could end up being the new floor in the market, we just don't know where that's at yet. It certainly won't be $12 again. But with the type of behavior that we have seen and then of course that big wipeout candlestick a couple of Fridays ago, any sell-off from here should not be a surprise at all. It's worth noting that silver is rolling over while the US dollar is fairly quiet so it's not even a currency play at this point.
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