Silver Wedge Signals Potentially Bullish Divergence
Blackwell Global | Jun 12, 2014 04:20AM ET
Silver is forming itself into an upward sloping wedge that is slowly tightening. As it reaches the bottom of the formation, the indicators may point to a bullish divergence, in which case we should see a decent pullback.
The XAG/USD H4 chart is dominated by a bearish trend that is there for good reason. The US economy is picking up the pace, and its consistent job creation is a sign of that. The Fed is ending its stimulus program and investors are no longer looking for safe haven assets. Silver is not the classical safe haven asset; its more precious cousin, gold, takes that place. But like any good little cousin, silver follows gold wherever it goes. And recently, gold has been heading down.
The recent bearish breakout in the gold markets led silver to a low not seen in almost a year; but silver has managed to bounce back. Silver has far more industrial applications than gold, so an economic recovery does not hurt silver as much.
Silver is a little volatile in its movements and can form very long wicks on the candles; however, in the past couple of days, the wicks, and indeed candles, are getting shorter. The consolidation has led to the formation of an upward sloping wedge and the price is currently close to the bottom of the shape, as shown in the XAG/USD H1 chart below .
The current RSI value of 49.64 is in a very neutral position, suggesting the market is neither overbought nor oversold. This indicates that a breakout is unlikely because the bears are not in control of the market at present. The Stochastic on the other hand, is showing momentum with the bears. But don’t be deceived; If the price moves lower to touch the trend line, the Stochastic will fall below the previous low (in orange). This will be a clear case of divergence, an excellent bullish indicator, as the price will paint a higher low, whereas the indicator will make a lower low.
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If that happens, we can expect a solid pullback from the trend line and a move to the top of the wedge formation.
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