Silver Price Analysis: Blow-Off Top Triggers Deep Correction in Silver

What to Know

• Blow-off top at $121.67 triggered trend exhaustion
• Signs of a bottom indicated
• Hammer setup hints at counter-trend rally potential

Blow-Off Top Signals Trend Exhaustion

Spot silver (XAU/USD) completed a blow off top last week after reaching a new record high of $121.67. The trend exhausted after that high, with sellers taking control and driving price down hard to a three-week low of $73.31. A bearish outside week was generated, encompassing the range of the prior two weeks. This behavior suggests the possibility of a deeper and prolonged correction in silver. Support for the week was seen at the convergence of the 10-week moving average and the top of a long-term rising channel. Additionally, the 50-day average on the daily chart provided additional evidence for support. 

Lower Swing High Confirms Bearish Control

That price zone did hold initially as support this week, leading to a two-day counter-trend advance. A high of $92.20 was hit before sellers took control again and a lower swing high was established on Thursday. Sellers showed up during that bounce after price encountered resistance near the 38.2% Fibonacci retracement at $90.55 and the 20-day average at $93.32. The advance therefore resulted in a lower swing high. 

Breakdown Extends Toward Deeper Fibonacci Support

Once prior support of the 20-day average is tested as resistance, followed by a bearish signal, the trend is positioned to continue. Thursday triggered the continuation of the trend with a drop through the low of the prior week. Subsequently, a drop to the 61.8% price zone with a low of $64.06 resulted in signs of support and a bounce. That price zone is also near the rising 20-week moving average, now at $63.50, adding to its credibility. 

Sharp Decline Tests Long-Term Moving Averages

Since the 10-week average was broken, the 20-day average became a target. Once reached, there was a chance that the bearish correction may have found a bottom, at least for now. The sharp intraday bounce that followed the low shows buyers returning as demand improves. It is interesting to note that the price of silver was down by $57.61 or 47.35% from the $121.67 record high as of the $64.06 low. 

Potential Hammer Candlestick and Reversal Setup

There is a chance that silver will complete a bullish hammer candlestick pattern on Friday. That would setup a potential one-day bullish reversal on a rally above Friday’s high. A counter-trend rally points to initial resistance near the 10-week average at $76.61. And on the daily chart, the 50-week average at $77.31 highlights a similar price zone. 

Range Development and Key Resistance Levels Ahead

If a sustainable low was established on Friday, silver could spend some time trading within the range of the downswing. A minimum retracement of the decline to the 38.2% Fibonacci level at $86.07 is likely following a hammer breakout. Further up is a target zone around $92.20 to $93.00 indicated by the confluence of a lower swing high, the 20-day average, and the 10-day average. Given the potential bullish scenario, shot-term pullbacks into Friday’s range may show signs of accumulation by investors in preparation for a continuation higher. Once the 20-day average is tested as resistance, the response should provide additional insight into the changing trend in silver. 

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