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
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.