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Silver Update: Roller Coaster Ride

The previous post “Golden Pattern For Silver, Not Gold” from December highlighted a bullish pattern called the ‘Golden Cross’ that appeared on the daily chart of silver futures. This occurred when the 50-day moving average crossed over the 200-day moving average.

While the majority of readers considered this signal to be reliable, they did not expect the price of the metal to rise above $30.

The following daily chart will show how the pattern has played out since then.

Silver Futures Daily
Source: TradingView

When the ‘Golden Cross’ signal was posted, the price of silver futures was at $23.9 (marked by the orange vertical line), and it went up almost $1 to reach $24.8 before stalling for over a month.

The price was unable to break above this new high and subsequently collapsed, dropping below the blue 50-day MA and testing the red line of the 200-day MA, briefly breaking through to reach the ‘golden cut’ Fibonacci retracement level of 61.8% at around $20.

Fortunately, the price rebounded strongly from this support level and crossed back over both moving averages to establish a new high of $26.4 last Friday.

If you had read the complete post, you would have been more prepared for the market movements described above. I spotted a Bearish Divergence on the RSI sub-chart and alerted about the possibility of a retest of both moving averages. As it turned out, this warning was spot on.

Ultimately, the price of silver saw a $2.5 or 10% increase from the time of the ‘Golden Cross’ signal to its most recent top, validating the reliability of the signal.

Nevertheless, the subsequent rise of only $0.9 (+3.8%) followed by a significant drop of $4 (-16.7%) to $19.9 could have been quite unnerving for even the most experienced traders. Therefore, I believe that this traditional signal should be viewed as a medium-term directional indicator rather than a prompt for immediate entry into the market.

The way the price moves in relation to the moving averages is particularly interesting. Specifically, when the price crosses above the blue 50-day MA, it can be considered a good tactical trigger for a bullish entry (or bearish stop), and vice versa. On the other hand, the slower red 200-day MA tends to act as a strong support or resistance level.

RSI divergence is a highly effective tool that I often use to warn readers in my posts, and it has a strong track record of accuracy. It proved successful once again in the recent price movement, as it allowed careful traders to protect 10% of their investment and avoid unnecessary stress.

Once again, a Bearish Divergence has appeared unexpectedly, indicating that the lower readings on the RSI sub-chart do not confirm the higher peak on the price chart. As a result, traders should brace themselves for a potential roller coaster ride.

It is difficult to predict how far the RSI divergence may push the price down, but the first support level is at the blue 50-day MA, which is currently around $23.5 (-9.7%). Additionally, in previous price action, the red 200-day MA was retested and is now located at $21.7 (-16.2%).

Intelligent trades!

Aibek Burabayev
INO.com Contributor

Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

This post was originally published on INO.com