With September more than half over, it’s time to take a look at the silver market since it is one of the markets on the move this month.
Last month, the Nearby Silver market broke through the resistance line of a triangle chart pattern on the monthly chart. In August, the resistance line was at $30.27 so the close at $31.44 was impressive. Since the market had been in such a severe down trend, the most important part of this chart pattern is the follow-through rally.
With the short-term range $37.78 to $26.20, a key retracement zone was created at $31.99 to $33.35. This area could have become a resistance zone, but strong follow-through momentum triggered a breakout through the retracement zone, putting the market in a position to challenge the February top at $37.78. This zone is now new support.
Besides the clearly formed triangle chart pattern, traders should also notice the developing double-bottom chart pattern. The two bottoms of the formation are $26.41 and $26.20. A breakout over $37.78 will not only turn the main trend up on the swing chart, but it will also confirm the double-bottom. If you take the difference between $37.78 and $26.20 and add it to $37.78, the projected upside target based on this chart pattern is $49.36. ($37.78 – $26.20 = $11.58. Add $11.58 to $37.78 to get $49.36).A move to this this level will put it slightly below the April 2011 top at $50.28.
Using previous rallies as our guide, traders should not expect a fast rally into this level. The course it is expected to take should be steady at least until it clears the retracement zone created by the $50.28 to $26.20 range at $38.24 to $41.08. In 2011, following a steady rally, the silver market went vertical as it passed through this same price area. I’m not saying this could happen again, but just referring to the past. Slow and steady may lead to higher prices over the long-run whereas vertical moves may spell the end to the run. Only time will tell if speculators have learned any lessons from the past.