Silver's testing a historical techical pivot, NFPs/Fed in focus

Aug 29, 2016

Silver prices have retreated in August, but the rally so far in 2016 provided several technical buy signals earlier this year. These signals suggested at the time that the market's stance on silver, and precious metals in general, was shifting despite the continued backdrop of another possible Fed rate hike (still really low rates!). Today, silver has tested a huge technical level at $18.50 that should not be ignored. It's tempting to initiate long positions above this pivot, which has served as both resistance and support since 2013, but such a strategy obviously depends on a rally at the end of the week following the US non-farm payrolls report. If you are to trade silver before then, I suggest making sure you have adequately calculated your expected loss in case of a breach below $18.30 (or $18.00 if you have more risk appetite). Theoretically, renewed buying pressures above $18.50 after this week (poor NFPs > delayed Fed hike) would suggest the end of the current price correction with a rally back up to $20.60 in September (and possibly fresh highs during the 4th quarter). A break below would give us a more neutral technical situation with a possible test of the 200-DMA, which is currently at $16.40). I would be less inclined to follow such a continued correction as I much prefer the current clarity that the support at $18.50 provides given the overall uptrend since the start of the year.