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Silver Finding Support, But Is It A Buying Opportunity?


March Silver futures (SI) hit at low of 13.805 on December 3. The price had been hanging around that 14 level for weeks by that point, so the drop to 13.805 ended up being a false downside breakout. On December 4 the price shot above 14.50. As of December 10 it is trading back near 14.

The 14 area is significant as it provided support last December, then again in August and is providing support now. The trend in silver remains down, and in long-term downtrends short-term support is expected to break. Yet, if we look at the downtrend over the last few years the selling has slowed in 2015; the downtrend could be weakening. The price is moving lower, but it has been edging past prior lows, not blowing past them.

Figure 1. Silver (SI) Daily Chart

So what is the play here? Consider a short-term long in the 14 region with anticipation of a bounce into 15.50. Keep the stop loss relatively tight, just below 13.80. The trade provides an excellent risk reward ratio.

If the price rallies into the 15.50 to 16 region, that is where sellers will be paying attention. If the price stalls out and drops from that area, it's a shorting opportunity in alignment with the longer-term downtrend.

The weakening downtrend is offering traders opportunity to play these short-term rallies, but the long-term trend remains down. It will take a strong rally above 16.40 (or a series of higher swing highs and higher swing lows) to indicate the possibility of a reversal.

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