Silver suffers setback after massive intraday reversal

Silver technical analysis, overview, strategies, and levels

As with gold, the technical overview for silver is also volatile, with the moves witnessed in this sphere amplified for silver over its precious metal cousin. General USD weakness in the FX markets usually translates into strength for silver priced in the greenback, but unlike relatively smaller moves for the US dollar against the FX majors, plenty are getting enticed into precious metals, and making short-term movement far more volatile.

The contrast between the changes in gold and silver prices has also resulted in volatility in the closely watched gold/silver ratio, which after making a record high of 126 back in March at the start of the pandemic has plummeted since to briefly cross into the 75 handle before surging back up into the 80’s.

From a technical standpoint, all of silver’s main indicators are flashing green and combined with a trending ADX (Average Directional Movement Index). However, while it has been tempting to label it a bull trend that may result in buying, the overview (as with gold) has been labelled volatile. That has meant conformist technical overview strategies are for expectations for key levels to break and not hold as market-makers withdraw liquidity fearing getting caught on the opposite side of a fierce move.

That has also meant the divide isn’t buy vs. sell, but in these extreme cases – and especially so for silver which has been experiencing wilder price moves than volatile gold – it has become a case of breakout vs. reversal. Those expecting the current volatility to last as fresh traders get enticed into market can consider conformist breakout strategies anticipating its key levels to break for limited profit-taking.

Those expecting the current ranges to hold can consider contrarian reversals, initiating only after the level has been breached significantly and as price returns back to the level (in a sell reversal, wait for price to significantly breach the 1st Resistance level first and to sell off the level as price comes back down to that level). That will reduce the likelihood of getting stopped out, with exposure only if the market continues to trend opposite the position after partial retracement.

IG client* and CoT** sentiment for Silver

While heavy long bias in gold has risen from 65% at the start of the week to 71% as of this morning as buys enter, silver majority buy bias was already in extreme buy territory at the start of the week, and remains unchanged at the start of the day at a staggering 85% (which in turn is below extreme long bias in platinum at 95%).

As for last Friday’s CoT (Commitment of Traders) report, heavy long bias has risen a notch to 68% as of last Tuesday on an increase in longs by 4,331 lots outdoing a 1,445 lot increase in shorts. That buy bias is below that of CoT speculator positioning in gold (majority long 83%), platinum (long 74%), and palladium (long 70%).

Silver chart with retail and institutional sentiment

*The percentage of IG client accounts with positions in this market that are currently long or short. Calculated to the nearest 1%, as of today morning 8am for the outer circle. Inner circle is from the previous trading day.

**CoT sentiment taken from the CFTC’s Commitment of Traders report, outer circle is latest report released on Friday with the positions as of last Tuesday, inner circle from the report prior.