On Further Inspection A Troubling Pattern May Be Taking Shape For Silver

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Published : October 20th, 2012
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( 5 votes, 2.6/5 ) , 4 commentaries
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Category : Market Analysis





Recently, a sell pattern emerged on the charts for spot silver. I identified it in my prior posts that can be read here and here. The first one was a confirmed double top sell signal and the other was the bearish COT charts indicating that further downside was evident. The aforementioned charts foretold this correction in the price of silver and the technical patterns have come to pass as expected. However, because I am still short silver for this correction I continue to analyze the chart and In looking at the longer term picture, I believe I spotted something on the longer timeframe chart that may foretell dark days ahead for the price of silver.

Granted, the pattern I will discuss is nowhere near confirming. However, it is certainly something that we, as traders, must keep a watchful eye on and cannot ignore it once we spot it.

First, I want to start off by reiterating that I am anticipating silver’s current correction will take the price of the metal back down into the indicated area on the chart. $30.75 to $31.75 (spot price) represents a key area of what I expect to be strong support. Those areas coincide with the 50 and 200 day moving averages. If this is just a normal correction off the move from the August lows, then I anticipate that the indicated area would be, and should be, where the correction ends.

HOWEVER, if you note the chart I have provided, a disturbing longer term head and shoulders topping pattern is taking shape which, if it unfolds, could be foretelling a larger drop for silver. How low? Using the calculations that one normally uses for a head and shoulders pattern, the move down is usually equivalent to the move up to the “head”. The good news is that the neck line is a long way’s off and represents perhaps the strongest area of support for silver, the $26.15 area which has now held 3 times. Granted we are a long ways away from that area of exceptionally strong support but should the pattern come to pass and should the price of silver breach that neckline, we could very well see silver trade down to $16.00.

Before my mailbox gets filled with all kinds of hate mail and the comments section gets over-loaded with those that might be misinterpreting my commentary, let me be clear. THIS POST IS IN NO WAY PREDICTING A MOVE TO $26.15 OR $16.00. HOWEVER, I am predicting that if we don’t hold critical support at the 200 day moving average, the next area of major support would be the aforementioned neckline on the chart at which time, this pattern will be flashing on everyone’s radar screens and at THAT time, we will be on the lookout for much lower lows.

As a long term silver bull, (I believe that silver is a good LONG TERM investment that should be accumulated on a dollar cost average basis as part of any portfolio), we must always be on the lookout for situations where we might want to take the foot off the purchasing pedal and let the price “come to us” meaning, hedge with the trading indicators that tell us when it might be time to go short, and trade those opportunities accordingly while holding off any purchases until the price comes to you. Of course this post will interest you more if you are a trader but if you are simply looking out longer term, then don’t fret and use dips to add to your position and consider any sharp price moves down as a “sale”.

No matter what your investment strategy is though, you cannot argue with the fact that silver has been in a bear market since the May 2011 top and all rallies since the drops to $26.11 have been countertrend bounces. The charts do not lie on this point.

I don’t want silver investors panicking or going ballistic. As we have seen in the course of the last 4 years, news can change on a moment’s notice that can affect the price of commodities (up or down) usually with the blink of an eye. Today’s loss is tomorrow’s gain and vice versa. However, being alert to longer term patterns can be useful when trying to get an accurate gauge on the market and where it might be headed. Being alert to potential patterns also helps you stay ahead of the curve.

One cannot ignore the fact that the price of silver has failed to rally to new highs in the face of further quantitative easing of historical proportions since the May 2011 top in silver. There has been more money printing since the 2011 top than there was that led to the surge in 2011. Remember It was supposed to be that massive easing that was going to propel the price of the white metal higher and the dollar should have been dead by now according to dollar doomsday groups. The reality of it all though is that it just hasn’t happened. Notwithstanding the rallies off the lows that we have seen since the bottom fell out of silver in May of 2011, massive money printing and easing measures have failed to propel the metal to new highs and I would lie if I said this doesn’t concern me. I ask my readers to consider this and ask themselves why this hasn’t occurred. A massive amount of buying power was consumed in the enormous rally leading to the May 2011 top and a lot of investors were hurt badly by the ensuing fall. Until those investors get back on their feet again and overcome those massive losses, I still feel that silver will have a hard time finding enough buying support to catapult it to new highs for a while yet.

On the flip side of course, if silver can rebound from this correction and surpass its recent $35.44 high, then we may be off to the races. a close above the prior high of $37.48 and we are on a quick spike to $40.00. Until then though, we must we wary of the emerging patterns and not turn a blind eye to them.



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Silver and gold must be seen as an insurance against the madness of monetary printing, as something set aside for (if and when) the destruction of our fiat system, or other disaster, comes to pass.

I'm speaking not as a trader whose blood pressure rises and falls with silver's pulse, but as someone wishing to have a measure of independence from the powers to be. It's the same reason I have 2 55 gallon drums of water in my gargage, food, antibiotics, silver and gold (in a secured location) etc. And only 1/5 of my assets have been devoted to that.

Should nothing happen, my heirs will have a hell of a garage sale. But I will have had many a good night's sleep.
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Dan thanks. The extreme values are 20/25 dollars apart. But because the long term pattern is bullish (either due to failing economics at the one end or improved economics leading to aggressive industrialisation at the other), I as a long term investor feel that over a 3 to 5 years investment horizon any person should gain between 50 to may be 100%. I have a hunch silver's industrial usage will call the final shots. We are re traversing Mar/ Apr days of this year. Thanks again.
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Thanks Papli. You made a statement that I agree with 100%. That is, in the end, INDUSTRIAL DEMAND will be the end all with silver's price.
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Dan honoured to receive a private mail from you. Thanks. Probed into my observations on your articles in the past and have concluded we are into the dip for the time being, but maintaining calm being bullish on silver. Your articles dated 13 Apr, 03 Mar and 25 Nov 11 and my comments had forseen what is unfolding presently. I am still a believer of the Industrial use forte of silver hence sticking to my holdings, in fact better placed on cash than previously. Hope to start buying in the sub $ 30 range. My comments on your article ' Something to watch for in Gold ' dated 13 Apr refer. Can you advise regarding when we can expect silver's worth as an industrial metal playing out?. Regards.
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Silver and gold must be seen as an insurance against the madness of monetary printing, as something set aside for (if and when) the destruction of our fiat system, or other disaster, comes to pass. I'm speaking not as a trader whose blood pressure rises  Read more
Jim C. - 11/3/2012 at 2:09 PM GMT
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