3 levels you need to know after XAGUSD throwback

This piece written on 15 August accurately predicted XAGUSD’s throwback to it’s previous 52-week high. I want to write about a follow-up today. Before that a recap:

After Brexit, XAGUSD rallied and broke previous 52-week high at $18.477. It went on to establish new high at $21.13. Subsequent support was made at $19.20. This formed a gap between $19.20 and the breakout level of $18.477. The concept of ‘throwback’ considers price going back to retest old breakout level at $18.477 high probability.

XAGUSD daily chart, Feb 2016 – present

XAGUSD daily chart, Feb 2016 – present

 

It is important to note that a throwback to previous 52-week high of 18.477 will not change the trend of XAGUSD. Once the pair achieved a new 52-week high, it has reversed it’s previous downtrend and started a new one that points to further gains. Secondly 52-week high is very important psychological level as well as strong support. I covered it’s explanation very comprehensively here. Do note that we have very clear evidence that this is the level to watch – while XAGUSD was sitting on it’s previous 52-week high, XAUUSD went back to it’s own with a test at 1302 as well (XAUUSD’s previous 52-week high is 1307).

 

Throwback done, what to expect in follow-up?

  1. Clearly support is now at previous 52-week high.
  2. Last effective resistance at around 20.50. Note the word effective. XAGUSD obviously traded higher on several days but closed lower. This effective level is calculated based on a cluster.
  3. At moment, there is a sub-level which XAGUSD is sitting on right now. It was the previous support and basis for gap. This is around 19.20 – 19.40. Until the day/week is over, we won’t know clearly whether price is closing above or below and therefore how that level should be read as support or resistance. So this part is now waiting for the market to show it’s hand.
XAGUSD daily chart January 2014 - present

XAGUSD daily chart January 2014 – present

 

I guess when it comes to trading, much of the process is like shopping at the Chatuchak Sunday flea market in Bangkok. If you are the very huffy/puffy compulsive type who wants it NOW, the vendor can somehow smell it – which means you will never get a good bargain. If you play hard-to-get, sometimes the vendor throws a really good deal. Time duration is a factor to consider. XAGUSD really spent more than a week at resistance before it weakened, so I don’t think it is going to rebound from support in 2 days. This is where a trader has to make a bet – that price will come down for another test to know that the 18.50s region is firm before a true rebound will happen. So more than 1 week one top, maybe more than 1 week below.

For myself waiting is perfectly good. We are going to see plenty of news come out from G20 going on in Hangzhou right now. Some of them are going to be really bad for the USD – that’s the trend – but maybe some of them might be a little positive which is going to be bearish for XAGUSD. And then after G20, it’s going to be the FOMC which according to Goldman Sachs, the FED is SO GOING TO raise rates.

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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.   Soh's Twitter account @sohtionghum was ranked #23 out of The Top 70 Twitter Accounts To Follow In 2015 by MahiFX.   Disclaimer notice: "I do not have a financial advisor's license. I am not qualified by any regulator to give financial advice. I do not know you the reader. Your investment means and motive may be different from me. My posts here are based on observations and meant for education. I am not responsible for for any consequence from your actions."
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