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Silver Nears Critical Support

Silver Daily Chart

Silver (daily chart) as of Thursday (6/16/2011) has approached a critical support confluence level at the juncture of a key uptrend support line extending from the late August 2010 low and the bottom of a triangle consolidation pattern. This triangle consolidation occurs after price action dropped precipitously from its 49.78 all-time high hit in late April to a low of 32.30 in mid-May before rebounding back up to the 38.2% Fibonacci retracement (around 39.00) of that drop. Now that price action is near the bottom of this triangle pattern, silver is at a critical price juncture. In the event of a breakdown below this support confluence of the triangle and the noted uptrend support line, a larger bearish correction could be seen, prompting price to fall even further to target the 32.00 level once again. With further bearish momentum that breaks down below 32.00, silver could potentially begin making its way down to target further downside support around the 25.00 price region.

(Click on chart to enlarge. Forex chart key: price on 1st pane, Stochastics 14,3,3 on 2nd pane; horizontal support/resistance levels in black; uptrend lines in green; downtrend lines in red; 50-period simple moving average (SMA) in orange; 100-period SMA in brown; 200-period SMA in dark blue; Fibonacci levels in magenta.)

James Chen, CTA, CMT
Director of Technical Research and Education