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The price of silver is following other precious metals higher, as the shiny metal breached the benchmark $26.00 resistance level for the first time in nearly four-week last Friday, and continues to closely track the price movements of gold.
Despite the recent advance, a sudden move higher in US Treasury yields abruptly stopped the ongoing breakout above the $26.00 level, causing the price of silver to move lower, which formed a worrying double-top pattern across the lower time frame charts.
On the fundamental front, discussion about fiscal stimulus and a recovery in the global economy is bullish for precious metals. Especially for silver, as the metal is a vital component in many goods, which overall bodes for physical silver demand.
Potential yellow flags have also started to show up on the technicals, and also on the ActivTrader market sentiment tool. Starting with the technical concerns, bearish MACD price divergence has formed on the lower time frame during the latest run higher.
The bearish price divergence extends down towards the $25.15 area and may need to be reversed across the lower time frame before we see silver breach the $26.00 resistance level with conviction.
Lower time frame divergence usually reverses more often than not, and the mentioned double-top pattern is also signalling that the price of silver may not be ready for lift-off just yet.
Bullish sentiment towards silver is also a concern at this stage. Some 80 percent of traders are currently bullish towards the metal. This would indicate that the metal is not yet really starting a new bullish trend.
According to the ActivTrader Market Sentiment tool traders are remains overly bullish towards the price of silver, with some 80 percent of traders still positive towards silver. This is a drop of 5 percent since last week.
We probably need to see sentiment neutralize of turn bearish before silver starts to breakout. Typically, such a one-way skew in the direction if the prevailing trend does not bode well for breakouts.
Silver short-term Technical Analysis
The short-term technicals for silver show that negative price divergence has formed, following the recent run towards the $26.40 level. The divergence extends down towards the $25.15 area.
Just as a cautionary warning, a bearish head and shoulders pattern, with a downside projection of over $5.00 is still valid while the price trades below the $30.00 level.
Ideally, silver bulls need to rally the metal above the $30.00 level to invalidate the bearish price pattern and start a counter-rally to $35.00.
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Silver Medium-term Technical Analysis
According to the daily time frame bulls keenly defended the metals key 200-day moving average last week, keeping the bullish bias alive, and the overall multi-month uptrend.
A large, inverted head and shoulders pattern appears to be taking shape across the daily time frame. A break above the $30.00 level is sorely needed to ignite the pattern, which holds a $10.00 upside projection.
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