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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 add – sorry!) 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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