Silver has just witnessed a rare false breakout. A false breakout is when a market overcomes a defined level of selling pressure, only to fail to hold above that level following a period of consolidation. The result after a false breakout is often lower prices; however, context is key, as the market should only be expected to fall to the next visible support level.
In this article we will highlight silver’s recent false breakout, the expected support level it should decline toward, and the price trajectory pending following the summer low.
Silver’s False Breakout
We will refer to the chart below in the following discussion:
Note the clear resistance boundary of sellers (blue) which have emerged at lower and lower price intervals, following the 2021 peak in silver.
No matter the reasons for their selling, whether legitimate or manipulative, these entities have chosen to exit their silver positions at incrementally lower prices over the last two years. This forms the resistance boundary of sellers.
Note how in April of this year, silver briefly exceeded the resistance boundary of $24.00 for several weeks (red callout). It appeared that buyers had regained control of the market, that sellers had dried up, and that a new trend of higher prices was on its way.
However, within several weeks the steadfastness of these buyers waned, and sellers emerged once again, sending prices back below the former resistance boundary. This is what we call a false breakout.
Context is Key
False breakouts can be catastrophic topping signals if they occur after a prolonged advance.
However, they can also simply be short-term topping signals if they occur within a sideways or declining trend.
In all cases, context is key.
In the case of silver, prices have been trending lower for the last two years. Thus, the false breakout is not taken to be a sign of a major long-term top forming; the signal should instead be representative of an intermediate-term top.
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