Silver prices are forming an interesting potential reversal (or downside continuation) pattern that’s worth a look, as we’re coming up into the key resistance level that will make or break the current short-term bear flag pattern that has formed within a larger term “rounded reversal.”

Let’s take a quick look at Silver’s Daily Chart:

I post frequently about Rounded Reversal structures because those are among my favorite trading patterns – they reflect a smooth transfer from demand to supply in a “roll-over” fashion that sometimes forms a ‘mirror image’ pattern.

The best rounded reversals come complete with negative momentum divergences, as we see here into the December 2009 highs (higher prices on lower momentum).

We’re now in the ‘right side’ down-phase of the rounded reversal pattern that appears to be completing currently.

The key to watch now is the bear flag pattern that formed on the recent rally into the $16.50 level, just under the 50 day EMA.

The new momentum low (red arrow) combined with 45 degree angle retracement (bear flag) into resistance raises the odds that we will see further downside action, particularly if sellers can push price back under $16.00 and especially $15.50.

The downside target would be the $13.00 area at a minimum, and perhaps even a full retest of the July lows at $12.50… but we’ll keep watching to see how this pattern plays out into the future.

In the meantime, Adam Hewison just released one of his quick 3-minute videos on Silver entitled:

“Looking at Silver for All the Wrong Reasons.”

Here is a screen-cap from the video which shows something I had not seen in my analysis:

Adam describes the ‘cycle tops’ that are apparent in the chart (and video) above in silver, and he states that we have just hit a cycle/cyclical top in early 2010.

I don’t do much work in cycles, so I appreciate Adam’s insight into that type of analysis.

He also shares the current “Trade Triangle” from Market Club (of which I am an affiliate member) which is – as you may have guessed – a sell signal.

Should silver continue its slide, it would hint that gold and stocks would likely be in decline phases as well, so we’ll keep watching these markets closely.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade