Silver Showing Signs of Fatigue
- Volume Profile suggesting a slump
- Untested Point of Control far below
- US/China in theory coming to agreement
During the trading session on Tuesday we saw a bit of choppy action in the silver market, but a decidedly negative tilt after an initial attempt to break to the upside.
The silver markets are highly sensitive to geopolitical and economic conditions worldwide, and are used as a way to express either “risk on” or potentially “risk off.” In other words, silver is bought when people are concerned about global growth, as precious metals are thought of as a safe haven.
Using Volume Profile studies, the points of control, or the level of highest volume traded during the session, are marked in red. The lavender area shows how much volume was traded at a specific price in the form of a histogram. Without delving too deeply into the mathematics underneath, it should be noted that Volume Profile is based upon the statistical bell curve that you learned about in mathematics. The figure part of the profile shows more volume than the thinner. That being said, the point of control is quite often thought of as major support and resistance due to the fact there is so much order flow at it.
You can see that the point of control over the last couple of sessions has stalled near the $17.10 level in the March contract. Because of this, it is worth noting that it makes the market somewhat vulnerable as we simply are running out of momentum. Furthermore, you will notice a dashed line at $16.69 below. This is a point of control that has yet to be tested, so it makes for a nice target on the breakdown, as clearly there should be a lot of long positions down at that lower level.
Right now, the silver market is moving a bit counterintuitively as the US and China have come together in a basic agreement or at least a framework of an agreement for “Phase 1.” Overall, this should be very negative for silver as it should be a massive “risk off” scenario. Beyond that, we have also got the election out of the way in Great Britain, which should also have a negative connotation for silver as well, albeit in a much less drastic fashion than the US/China trade war.
The question is, which market has it wrong? Keep an eye on silver, because a breakdown below $17.00 could lead to that untested point of control underneath. To the upside, it will be more of a slow grind as momentum certainly is starting to work against the buyers when it comes to the silver market, and for what it’s worth the gold market looks very similar at this time.