Silver Price Analysis: Reaches new high for May but pulls back after becoming overbought

Silver price has risen to a new high for May following the release of US data.
Silver has become overbought on the 4-hour chart and is in the process of pulling back.
It could correct lower but the overall uptrend suggests it will recover and continue pushing higher.

Joaquin Monfort FXStreet

Silver (XAG/USD) price has risen up to a new high for May at $29.20 after the release of market-moving data from the US.

Silver is in a short-term uptrend but it has become overbought according to the Relative Strength Index (RSI) momentum indicator. The RSI is also diverging bearishly with price.

4-hour Chart

A bearish divergence occurs when price rallies to a new high but RSI does not follow suit as happened between May 10 and May 15. It is a bearish sign.

Price is pulling back on the current bar and looks like it might be forming a bearish Shooting Star Japanese candlestick pattern. If such a pattern is confirmed on close and it is followed by another bearish bar the Shooting Star will gain relevance and denote a short-term reversal lower.

When taken together with the indications from the RSI, it could be indicating Silver is about to undergo a correction – much depends on how the current and next bars develop.

Eventually the short-term uptrend should reassert itself, however, and Silver price rally higher. A break above the day’s high at $29.20 could give added confirmation of more upside to the next resistance level at circa $30.00.

A decisive break below $27.97 would bring the short-term uptrend into question.

A decisive break would be one accompanied by a long red candlestick that closed near its lows or three red candlesticks in a row.

Author

Joaquin Monfort

FXStreet

Joaquin Monfort is a financial writer and analyst with over 10 years experience writing about financial markets and alt data. He holds a degree in Anthropology from London University and a Diploma in Technical analysis.

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