Two weeks ago, silver(COMEX:SIN14) bulls were on the ropes. The grey metal was pressing against its four-year low in the mid-$18.00s and there were serious concerns that global economic growth could be taking a turn for the worse, hurting industrial demand. Since then, both the European Central Bank and PBOC have eased monetary policy, and combined with another solid jobs report out of the world’s largest economy, silver’s fundamental picture is looking decidedly more optimistic.
The technical outlook has improved in tandem, with silver rising in each of the five days this week. Yesterday’s price action formed a large Bullish Engulfing Candle* / outside day, signaling that the buying pressure remains strong heading into the weekend. The commodity has now bounced from strong support at 18.75 on four separate occasions, and the RSI indicator has now put in four higher lows, forming a quadruple bullish divergence. The divergence shows declining selling pressure on each consecutive test of the 18.75 level and suggests that we may see a more substantial rally heading into next week.
While both the technical and the fundamental outlooks for silver have improved, it’s important to note that silver remains within a longer-term downtrend. Indeed, if prices do head higher next week, we could see resistance emerge around the two-month high at $20, which also marks the bearish trend line off the August 2013 high. As long as that resistance near 20 holds, the silver’s longer-term bias will remain to the downside.
*A Bullish Engulfing candle is formed when the candle breaks below the low of the previous period before buyers step in and push rates up to close above the high of the previous candle. It indicates that the buyers have wrested control of the market from the sellers.