Since October 2008, silver has formed an ascending wave which continued until November 29, 2009. We see on the weekly chart below that it created a bullish channel that organized these upside moves from $8.48 per ounce and topped out at 19.44 areas. We notice on the provided chart that a negative divergence has appeared, giving the impression of moving negatively with the start of 2010.
SILVER - Annual Technical Analysis for 2010
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As we see on the secondary image, a classical bearish pattern has been captured, supporting our technical suggestion that the metal changed the direction. The aforesaid negative pattern might be capable of pushing the metal downwards further more.
A break of 17.15 added further confirmation to the highly anticipated bearish wave, targeting the pivotal support levels between 14.85 and 15.00 zones.
In its way to the downside, silver will be facing a very solid support level at 16.20. This level represents the most important level over short and medium term basis as it represents areas for previous recorded highs and bottoms, or rather strong resistance that turned into key support. A stable move below it will ignite a panic selloff during the first quarter of 2010.
Dear reader, if we study history together from 2003, silver was inclining every year in comparison to the previous year. Routinely, silver inclines during the first half of every year as in 2008 it inclined aggressively before starting the downside move.
Classically, there is a golden rule which says history repeats itself; thus, we think that the expected bearishness will be just to relief momentum indicators which show obvious overbought signs before resuming the major bullish direction.
As far as 15.00 zones remain unbroken, the major bullish direction will continue and if 16.20 areas protected the metal, the recently established bearish movements will be seen as a correction and it will be limited there.
The major upside direction which might start again after completing the correction will be initially targeting 20.05 zones, followed by the historical level of $21.35 per ounce.
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Let's study the chart from another technical point of view; if the metal succeeded in breaching the lower line of the ascending channel, then silver might have placed the short term top earlier.
We see a probability of forming a reversal classical pattern [Head & Shoulders Top] which has been formed already, but we need to witness a clear breakout below the neckline around 16.80 to make sure that it might lead us in a southern trip towards the technical objective at 14.30. If that occurred, then the lower line of our detected channel will be penetrated and also the metal will be very close to 50% Fibonacci below 200 MA.
All those facts combined are capable of reversing the medium term trend to the downside, but the broken support levels might be re-tested before resuming this negative scenario, mainly targeting 11.10 zones.
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