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December Comex silver futures on Tuesday hit a fresh contract and 30-year high of $29.34 an ounce. However, in late trading Tuesday prices backed way off on profit-taking pressure. And then in after-hours trading Tuesday afternoon the market dropped even farther when the CME announced it is raising trading margin requirements for silver futures. The daily trading range in December silver futures Tuesday was a mammoth, at nearly $3.00. Tuesday's price action in silver futures does begin to hint that the bulls have now become exhausted after producing a rally of more than $5.00 an ounce since last week's low of $23.935. The silver market bulls can still correctly argue that no serious technical damage has been inflicted and that prices are still in a 2.5-month-old uptrend on the daily bar chart. How the silver futures market closes on Friday will be a key technical clue for traders. A close at or near the weekly low would be signficantly near-term bearish to suggest a near-term market top is in place. A solid rebound and close near the weekly high in silver futures on Friday would provide the bulls with fresh upside near-term technical momentum to then suggest more price gains are in the offing in the near term. From another technical perspective that favors the bears on a near-term basis, the Directional Movement Index (DMI) overlaid on the daily bar chart for December silver futures shows some bearish divergence. The ADX line of the DMI in mid-October showed a reading of 53.51. Since that time the ADX line has moved lower, while at the same time the silver market, itself, has moved higher. That's called bearish divergence and is a bearish technical clue for silver. However, the ADX line of the DMI suggests the present price trend is still a strong one. Any ADX line reading above 30.00 does suggest a strong price trend is occurring in a market.
By Jim Wyckoff
Resistance at 29.34 and support at 26.415
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