New Bear Pennant Emerges In Silver Market

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Published : November 09th, 2012
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Category : Market Analysis

 

 

 

 

As for our continued analysis of silver, check out the following chart using the SLV since that is what I am playing on the short trade (put options in the SLV);



NOTE THE BEAR PENNANT MARKED IN BLUE. Remember we used the prior bear pennants to trade silver lower when I posted on October 30th that more downside was likely relatively soon in silver. You can re-visit that post here to see how accurate the pennant formations were in forecasting further selling. What is significant is that silver reached but was unable to breach the upside targets for the move as I posted last night and gold stalled right at it’s upper extreme.

Using the confirmed bear pennant, a move below 30.11 on the SLV would trigger another wave of increased selling with a target to $29.00 on the SLV (short term). As I write this we are at $30.65 in the SL which is in the middle of that pennant. I will probably look to exit the puts if we get a breakout of that pennant ($31.26 on the SLV) bug given the inability to hold yesterday’s rally, I favour the bearish case more than the bullish arguments at this time. I also marked the prior pennants on this chart (sloppily I might addsorry!) to give you an idea of how the prior pennants forecasted downward movement.

As I wrote in my update this morning, what I noticed on the 24 hours futures chart, (sorry that program I use doesn’t allow copying and pasting/saving and the screenshots and editing involved are just too time consuming) is that the big move up yesterday and the continued upward move overnight was with a backdrop of a declining RSI. Normally when an asset moves higher, the RSI moves up too. It didn’t and this RSI divergence is very troubling in the bigger picture as it is usually a sign of distribution and represents a move that cannot be trusted.

Because trends are composed of a series of price swings, momentum plays a key role is trying to determine the overall strength of that trend. A slowing trend, or a trend that is losing steam is usually indicative of a price reversal around the corner just like increasing strength implies further gains are likely. When price increases and RSI decreases it means that the two are not in agreement with one another and is usually the first sign that the move cannot be trusted. When such a divergence is spotted, the odds favour a retracement of the price. This is exactly what happened from about noon yesterday until today.

Keep the levels in mind when trying to set up your direction, adhere to strict rules and watch for any breaks of any price channels.

Technical analysis isn’t always correct. Heck, I’ve not always correct. All we can do is try to spot the set-ups and go accordingly. Using tight price targets and adhering to them to limit losses on wrong trades is key. In fact, with options trading, i is VITAL.

The US dollar move has yet to be properly reflected in the metals in my opinion which should contributed to further declines in the metals along with the technical picture which appears to be breaking down again. Of course I can be wrong and if I am I’ll try to post as quickly as I can. By providing the levels to watch for, you should now know what to do in the event you are piggy backing me on this trade.

As always, read my disclaimer and note that this information is not intended to be a recommendation to buy or sell any security and this analysis is my own opinion.

 

 

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