After a series of strong rallies earlier this year, silver is presenting another buying opportunity following a pullback.
December silver futures (SI) peaked at 21.25 in July, and have since fallen to an October 7 swing low of 17.115. Since the low, the price has been consolidating below 17.855 as of the October 19 close. A rally above 17.855 breaks the multi-day consolidation and indicates the next rally may be commencing. Stop loss orders can go below 17.115.
An initial target is 20.20. Over the longer-term the uptrend is expected to continue, pushing the price back above 21.25 and into the 22.50 region. Rallies have been strong this year, so the initial target could be seen before year end. The higher target could also be seen before year end, but more likely early 2017 (consider the March 2017 contract if looking out that far).
The trade sets up well for a number of reasons. The recent consolidation has occurred well above the last major swing low of 15.965 (June), showing that overall silver is still in an uptrend despite the recent pullback. Based on the entire rally from late December to the July peak, the price has now retraced about 50% of that move (this was discussed in August, just after the price peaked). This is how far silver typically pulls back after making a first major wave higher in a new long-term uptrend.
Figure 1. December Silver Daily Chart
It is possible the price could keep pulling back, even after a rally. Overall the outlook remains bullish as long as the price stays above 15.965. If it drops much below that, then silver may be once again entering a downtrend.