The main range is $45.55 to $121.67. Since the January 29 top, the market has spent a considerable amount of time inside its retracement zone at $83.61 to $74.63. Despite some whipsaw action in early February, which drove the market to $64.06, I think the market has, for the most part, respected our formal retracement zone.
The short-term range is $121.67 to $64.06. After a considerable wait, silver finally tested its retracement zone at $92.86 to $99.66. Sellers showed up inside this zone on Monday when the market tested $96.43. This was a potentially bearish closing price reversal top. Our rules say that following a prolonged move up in terms of price and time (7-10 days) and a market closes lower, below its daily mid-point and below the opening, it’s a serious sell signal. After confirmation with a follow-through move over the next 2 to 3 days, we should look for a 50% to 61.8% correction of the last rally.
The last rally was $71.98 to $96.43, so we hit our 50% to 61.8% objective at $80.24 to $76.42 today, when the market plunged to $77.96.
What Comes Next: Coil Pattern in the Making
The reversal top is not a change in the trend, but a chart pattern designed to alleviate some of the upside pressure. It can eventually lead to a change in trend, but it’s going to need a few days of work in order to do that. This could include a few days of straddling retracement levels between $96.43 and $77.96. This could form a coil pattern that often leads to major moves, depending on how long it spends inside the coil.
Besides the swing chart analysis, silver traders should also pay close attention to the 50-day moving average trend indicator at $85.05. When combined with the swing chart, a price cluster with the 50% level at $83.61 emerges.
Based on today’s price action, the near-term tone of the market is likely to be determined by trader reaction to the 50-day moving average at $85.06 and the 50% level at $83.61. Look for buyers to return if traders can recapture the 50-day MA and for selling to possibly intensify on a sustained break under the 50% level.
