XAG/USD falls to a four year low  below  $16.5 per ounce

XAG/USD falls to a four year low below $16.5 per ounce

By: Darryl Frankfort | Where To Trade | On:31-10-2014 03:48
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Key Highlights

  • Silver prices break below $16.5 per ounce
  • Fundamental factor depressing prices
  • Technical analysis
  • Suggested trading approach

 

Silver 

The Price of silver has been gradually falling since 2011. Silver at its highs in April of 2013 commanded $49.5 per ounce. Today however, following the release of the US GDP readings and the consequent strengthening of the dollar, silver has fallen below its four year low. We have gone below the $16.5 mark and we are now well in the way to test the $15 per ounce price level.

From the daily chart, we see that silver prices have been falling for the last four months. This coincides partly with the strengthening of the dollar’s buying power. From the highs of July we have fallen over 5000 points. In June, we hit a major support level at the 16.665 level and prices have been ranging within a 700 points range above the support unable to slide lower. Yesterday, short sellers have found the push needed to drive prices below the support. We are now about to test a major support at 15.8. We anticipate seeing significant buying pressures at this level.

 

Technical analysis

Four hour Chart

From the four hour chart, the 14 period and 21 period moving averages are trading above the prices. This indicates that the bearish momentum for the price has picked up. We also notice that the moving averages have made a bearish cross with the 21 period moving averages trading above the 14 period. This signal gives is the necessary signal to ascertain that the down trend is going to continue in the short term.

The MACD has made a lower low along with the price which is bearish continuation signal. The RSI at 27.42 indicates that we are at oversold conditions. This warns us to expect some retracement as the bears get exhausted. The stochastic is similarly in the oversold region with a 13.06 reading.

 

Where To Trade - XAGUSD H4

 

Daily Chart

From the daily chart, we get an important short entry signal taking shape, we however need the current candle to close. The 14 period and 21 period moving averages have just concluded a bearish cross with the prices well below them. This is a bearish signal that indicates that prices are likely to continue sliding lower in the medium term.

For the last three months, the MACD on the daily charts has been making lower low as the prices fell. The RSI is reading 28.19. This neutral reading however the indicator is approaching the oversold region and we could see a spike in bullish pressure in the lower time frames. The Stochastic is in the neutral territory with a reading of 24.76.

 

Where To Trade - XAGUSD Daily

 

Weekly chart

From the weekly chart, both the 14 period and the 21 period moving averages are trading above the prices. The 21 period moving average has just crossed above the 14 period moving average which indicates that there is significant bearish momentum. However, this signal must be qualified because the markets have been ranging and it has been giving a lot of whiplash. We can therefore not trade on it until we break below support and continue trending downward.

The RSI at 29.48 indicates that we are approaching oversold conditions. We could therefore see a spike in the bullish pressures. The stochastic at 24.68 on the other hand indicates that we are moving out of oversold conditions.

An important indication on this time frame is the fact that eh MACD has been making higher lows. This means that we could get a potential reversal in the longer timeframe.

 

Where To Trade - XAGUSD Weekly

 

Wrap Up

Silver prices are being dominated by the bears currently. On the larger time frame however, we have seen that there is the possibility for a reversal to take place. We are also nearing a major support level.  Under these conditions an aggressive approach is to buy silver near the major price levels. A cautious approach is to short the price to the current support at 15.8.

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