- Silver extended gains Thursday after bouncing from the 50-day EMA, testing resistance near $48.50 within a $47 to $50 consolidation range.
- While momentum persists, growing volume and recent distribution suggest a potential topping pattern with rising volatility ahead.
Silver continues to see inflows as Thursday has been fairly positive. This is not a huge surprise considering that the Tuesday candlestick was a hammer that bounced off the crucial 50-day EMA, followed by Wednesday showing further signs of strength. We gapped lower to kick off the Thursday session and are now testing the top of Wednesday’s range near the $48.50 level. This area has been important multiple times over the last week and a half, so it’s not a surprise to see it tested again.
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However, I think we are on the precipice of a serious question being asked. We are essentially in the middle of a potential consolidation area between the $47 level on the bottom and the $50 level on the top. As we hover around the midpoint, the market is likely to continue seeing significant volatility and question whether the overall uptrend remains intact. I can give you plenty of reasons why it could be, but I can also tell you that the market got far ahead of itself in the massive run across metals overall.
Silver, of course, is an industrial metal more than a precious one, even though it tends to follow gold’s general direction over the longer term. At this point, it’s not until we take out the $50 level to the upside that I’d be more comfortable confirming the continuation of the uptrend. Right now, it looks like a market that has seen massive dumping lately, and it’s worth noting that the spot and futures markets have converged again. At one point, we even had backwardation, where spot traders were paying $2.50 or more above futures prices for physical silver.
Whether we can maintain this momentum remains to be seen, but at this point, the chart looks a lot like a topping pattern, with volume picking up. It’s a classic distribution if you’re a Dow theorist. If we were to turn around and fall below the 50-day EMA, it could open the door to a significant drop—potentially down to the $42 level, followed by $40. I think volatility will remain a defining feature of this market for some time.
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