Broadening Pattern Suggests Volatile Upside Potential
The recent bearish correction in natural gas undercut a higher swing low $2.74 from August two weeks ago. Monday’s advance shows a bullish reversal following that bearish trigger. Since the recent high of $5.02 was slightly above the prior high from March, and the opposite from the downside, the process of price discovery has taken the early form of a broadening formation.
Whether the pattern evolves to maturity or not, this suggests that the bullish reaction following the January bottom could be volatile on the upside. Given the volatility spike on the way down and due to the broadening formation, a similar counter response could result in a sharp bullish move. Either way, it looks likely, that at least a temporary bottom, has been established.
Key Support Levels Define Near-Term Structure
Given the above bullish scenario, short-term weakness will likely be used by traders to strengthen conviction in preparation of a rally. Key dynamic support is near the 10-day average at $2.79, while the reaction at the $2.74 price zone may also provide clues. Resistance was seen near that low level last Friday and Thursday. The high of each day was $2.74.
Upside Targets Align with Fibonacci and Moving Averages
The minimum anticipated upside target is the 38.2% Fibonacci retracement at $3.51. On the way there, since the 10-day line was reclaimed, the 20-day average at $3.13 becomes a target and the next surmountable dynamic resistance marker. The 200-day average upside target is at $3,65, while a 50% retracement target is at $3.80. Be aware that the nature of the broadening formation is to expand the price range. Therefore, a drop below $2.58 may trigger a new trend low for silver while it remains within the parameters of the broadening formation and subject to an upswing.
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