I wanted to follow up on my updated silver chart yesterday because some might say that silver had an outstanding reversal yesterday which confirms a higher price move is imminent. I think that frame of mind is pre-mature and while silver may spike up, it may also wash out again to the downside given that it is STILL in a bearish pattern.
There are a couple of points I want to highlight. First, while yesterday’s price action was good, (silver was down hard overnight and rallied intraday to close at the highs) but where the price stalled is important because it implies that further price declines are not out of the picture and silver, the weakest acting metal so far, is not out of the woods by a long shot. I wanted to zoom in on yesterday’s chart which shows that while yesterday's price move was good in that it saved silver from collapsing further, it did not break the current bearish pattern. Was yesterday’s high a bull trap? Was yesterday’s action a bear trap? These are points we need to consider along with the fact that today gold is having a great day along with platinum and the miners are doing well (GDX and HUI) but silver is barely moving and in fact was down intraday while all the aforementioned were up considerably. I would have expected silver to follow suit but as I write this it hasn’t so we must take this into consideration.
I do believe that we are literally a couple days from resolution here. The green arrow on the chart indicates the potential upside thrust and the red arrow shows the potential downside move. I still favor bearish resolution but we must be ready for the bullish case. If yesterday’s rally was a “bull trap” then we could be in for a quick move down perhaps starting in the overnight session. I would have expected silver to act better today in the face of the aforementioned indicators. This is why I cannot rule out bearish resolution to this bounce off the crash lows.
I would rather have a re-test of the lows and a pierce through it instead of a V correction. This is because if we do get a crash through the lows of last month and then silver starts to move back up I would more confident in going long for what I perceive could be a good move back up. The lower highs and lower lows coupled with the action noted in the chart is what leaves me leaning to silver having to resolve lower before we can safely call an end to the correction.
There is also another scenario that calls for the potential end to this corrective rally since the crash lows. Note that while also forming a bearish flag and another pennant, we also have another Head and Shoulder Pattern developing. While less reliable than a H&S pattern at the TOP of a major longer term rise, the last H&S pattern we identified here before the major drop turned out to confirm. The following chart shows the formation of this latest topping pattern.
So, we have a bearish flag, pennant and head and shoulders topping pattern from the April 15th lows. Three bearish patterns that are very close to confirming in silver.
We are at the apex of a significant move down or another thrust up. I think I’ve already made my point about favoring the bearish resolution, I would not be afraid to go long if the signals tell me to.
Trade smart and stay alert. This week should see some resolution.
