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Silver has staged a tepid recovery from a multi-year low as investors continue to remain extremely cautious towards precious metals with the FED looking to taper by year-end.
Precious metals such as silver and gold are likely to be further impacted by US economic data this week, meaning that strong US economic data is likely to lead to more precious metals selling as traders believe the prospects of QE tapering are increased.
It should also be noted that the opposite is also true. Bad US data pushes back expectations of QE tapering. Overall, US economic data is going to be very important for the price of silver this week and stopping a potential meltdown under the $22.00 level.
On the technical front, silver is in fact on the cusp of a technical meltdown if sellers can consistently hold the price under the August low, close to the $22.00 level. If this happens a brutal sell-off in silver prices is likely.
In order to secure the short-term prospects of silver bulls need to anchor the metal above the $24.00 level, which is a key upside levels buyers have been struggling with over the summer.
Sentiment is also a big deal for silver right now. Retail traders have once again failed to believe that the shiny metal is in any form and peril, and a massive one-way sentiment bias have built up.
The ActivTrades market sentiment tool shows that some 93 percent of traders are bullish towards silver right now. This huge sentiment skew is making me nervous towards buying silver..
This strong bullish bias amongst the retail crowd has been an issue for me this year. I strongly believe we actually need to see retail traders turning heavily bearish towards the metal in order for a big silver rally to take hold.
Silver short-term Technical Analysis
The short-term technicals for silver show that a large head and shoulders pattern has formed, following the recent drop towards the August price low, around the $22.20 support zone.
According to the overall size of the typically bearish pattern silver price could be due a further $2.00 decline in the short-term. Watch out for more heavy losses below the $22.20 level of selling takes hold this week.
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Silver Medium-term Technical Analysis
The daily time frame that a break under a large flag pattern continues to unfold. These flag patterns often signify large price ranges before an eventual range breakout.
According to the size of the pattern we should expect to see more heavy losses over the medium-term while the price remains capped under the $22.90 resistance zone. Bears need to be careful if daily price closes back inside the flag start happening.
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