Well we got our answer on Tuesday with Silver's decisive move higher, comfortably above its 50 dma for the first time since August. It came on slightly above-average volume which at least adds a bit of conviction to the move. Higher volume would have been better to see, but it's not something that concerns me.
Tuesday's move thrust silver into a highly congested trading range, otherwise known as "overhead supply," noted by the green box above. This is an area on the chart where buyers and sellers battled it out before a clear winner was determined. In an uptrend, overhead supply will act as resistance, the logic being that investors who bought in this area and proceeded to watch their investment drop in value are now looking to sell so they can break even. The longer the period of congestion, the stronger the resistance will be. In this case, that green box is about six weeks in duration - not a tremendous amount of time, but not insignificant either.
Now that silver has entered the "box" (dashed green line), I would fully expect the bulls and bears to start battling it out once again. The three days of trading after Tuesday are textbook consolidation days. After the 4% move, silver drifted sideways for three days on declining volume. This "backing and filling" action gets rid of the weak longs while new, stronger longs build their positions. If silver, or any stock for that matter, were to just shoot higher and higher without a pause, then the risk of a reversal and crash increases greatly (eg. silver in April 2011) as no support areas were created.
My point with all of this is that Silver is displaying very healthy technical behavior which is encouraging for a longer-term advance. Don't be surprised if silver bounces around between $16.65 and $18.00 for a while longer. But as long as up days continue to be higher volume and down days continue to be lower volume, this nascent uptrend should have legs.
All in all, silver is starting to show technical strength for the first time in months. Expect volatility within the trading ranges I've described and keep an eye on the upper and lower boundaries. If silver breaks back below $16.65, then I would expect additional weakness. If, on the contrary, silver breaks above $18.00, then I would expect further upside.