XAG/USD opened with a positive gap on Monday, and continued to sail north, briefly overcoming the peak of Aug. 2, at 29.78, thereby testing territories last seen in February 2013. The rally began late last week, as organized small-time investors bought the white metal, following thousands of Reddit posts and hundreds of YouTube videos, a similar phenomenon to the one which has driven a 1.600% rally in the shares of GameStop (NYSE:GME). Overall, the precious metal remains well above the upside support line drawn from the low Mar. 15, which combined with the latest rally, paints a positive outlook.
If the frenzy continues, we may see another attempt to break the 29.78 zone, and if the buyers prove successful this time around, the door towards the high of Jan. 23, 2013, at 32.45, could be opened. The bulls may decide to take a small break after hitting that zone, thereby allowing the overstretched rally to correct lower. However, as long as the price continues to trade above the pre-mentioned upside line, another rebound could be possible, with strong chances of breaking above 32.45. If this is the case, the next stop may be at 34.40, a resistance defined by the high of Nov. 29, 2012.
Shifting attention to our daily oscillators, we see that the RSI poked its nose above its 70 line, and continues to point north, while the MACD lies above both its zero and trigger lines, pointing up as well. Both indicators detect upside speed and support the notion for further advances in this metal.
On the downside, we would like to see a strong dip back below 24.15 before we start examining the case of a bearish reversal. Such a move would take the price below the aforementioned upside line and may initially target the lows of Sept. 24 and Nov. 30, at around 21.75. If that barrier does not hold, a break lower could carry more bearish implications, perhaps setting the stage for the 19.55 area, marked as a support by the inside swing high of July 15.