Silver extremely overbought after bullish break, resistance zone looms on the horizon

Silver’s bullish break above $30 extends further
$35 a key level for bulls to overcome
Rarely has silver been this overbought on a daily timeframe

Having taken out its 2021 high on Friday, silver has extended the bullish break on Monday, powering its way above the $32 per ounce on the back of big gains in Chinese commodity futures. Given the speed of the rally, silver is fast approaching $35, a level it struggled to overcome in the early 2010s.

Silver bulls eye breakout to record highs

Having broken out of the ascending triangle it has been stuck in since the start of the pandemic, it’s not surprising some traders are starting to question out loud whether silver may be destined to take out the record highs at $49.51.

However, between October 2011 and October 2012, silver pushed above $35 in six of 13 months but never managed to close above it, making this level potentially important when gauging how far silver’s bullish break may extend on this occasion. It looms as an especially large roadblock for longs if history is any guide.

Source: Refinitiv

Overbought no impediment to outsized gains

Zooming in, other than how impressive the bullish break has been, the other thing that stands out is just how overbought silver is using RSI on a daily timeframe, sitting at an eye-watering 79.74. To put that reading into context, there have only been four other occasions RSI has exceeded that level dating back to 2015, and on three of them it coincided with a near-term peak.

However, there was one rather larger exception to the rule back on July 20, 2020, when despite being extremely overbought on RSI, the silver price managed to surge another $10 in less than three weeks. For traders, the question now is whether this will be a similar episode? From a technical perspective, the setup on this occasion is far more bullish than then, hinting indicators such as RSI may only be a secondary consideration.

For now, silver was bought earlier today when it fell below Friday’s high of $31.60, making that the first support level of note. Below, a more pronounced support zone is located between $30.08 and $29.82. On the topside, the high so far today was $32.52. As mentioned earlier, beyond, $35 looms as a key test should the price return there.

For now, I’m watching to see how the price action develops. Should the price retest and hold either of the support levels mentioned above, it will allow for long positions to be established above with a stop loss below for protection.

-- Written by David Scutt

Follow David on Twitter @scutty

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

Contracts for Difference (CFDs) are not available to US residents.

FOREX.com is a trading name of GAIN Capital - FOREX.com Canada Limited, 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA is a member of the Canadian Investment Regulatory Organization and Member of the Canadian Investor Protection Fund. GAIN Capital – FOREX.com Canada Limited is a wholly-owned subsidiary of Stonex Group Inc.

Complaints are taken very seriously at FOREX.com. You can view our complaints procedure here.

Know your advisor