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Major Silver Buying Opportunity Upcoming


December Silver futures (SI) ran from a low of $13.77 in late 2015, to a July high of $21.25. That's a 54% rally, and based on a historical context this rally is likely just getting started. A deeper pullback is expected though, before another major wave to the upside develops. Here's the outlook and how to trade it.

Based on historic rallies off major bottoms, this is likely the first wave in a multiple-wave uptrend. While the price could edge higher in the short-term, a deeper pullback is expected from the $21.25 to $22 region. Silver has a tendency to retrace about 50% of its advance following a first wave up. That indicates a pullback to $17.50; the contract is hovering above $19 as of August 23.

The 50% pullback is just a tendency, and not necessarily what silver will do this time. Yet, it does provide a good guide. Assuming the pullback will stall out between a 45% and 60% retracement gives a buy zone between $17.88 and $16.76.

Wait for the price to fall into this area (or close to it), and then consolidate for several trading sessions. The consolidation shows that selling momentum has slowed. Buy when the price rallies above the high point within the consolidation. A stop loss is then placed below the consolidation low. Alternatively, assuming the consolidation occurs above $16.50, a stop loss can be placed below the June 1 swing low of $15.965.

Figure 1. December Silver Futures, Daily Chart

If the pullback unfolds, and the price extends down into the $17.50 region, the rally that ensues is likely to take the price above $25 (likely won't occur before contract expiration). That would be the second leg higher in a multiple-wave uptrend. After another pullback, it is likely there will be at least one more push to upside. For now though, the main opportunity is buying in the $17.50 region, with a price target at $25 or above.

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