The Rounded Reversal and Bear Flag in Silver Daily

Feb 23, 2010: 12:31 PM CST

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

4 Comments

4 Responses to “The Rounded Reversal and Bear Flag in Silver Daily”

  1. Vipul Ramaiya Says:

    Hello,

    My name is Vipul Ramaiya and I am currently pursuing CFTe, Level 2 candidate. I had a question regarding the chart of silver daily that you have shown above.

    My analysis says that silver in the daily chart has completed a head and shoulder formation, with the neckline broken below the 17$ mark, with pattern targets of 13$(similar to your interpretation).

    Secondly, I wanted to question you regarding your use of MACD settings of 3,10,16 against 9,12,26. Please explain the difference between the interpretation of both.

    Regards
    Vipul Ramaiya

  2. TheYenGuy Says:

    Corey, I agree that the likely direction is down for silver.

    I've always said: “silver — it's speculative and manic”, meaning it jumps up and down; the bear flag is a signal for continuing down.

    Well down .. for now.

    However, long term it could go higher … it could turn from being an industrial metal … to a poor man's gold as gold soars higher, as the yield curve steepens.

    A rising yield curve is seen in:
    1) the TBT to PST spread increasing April 13th, then again October 1, and then December 1, 2009 http://tinyurl.com/y8jm9ce
    2) the TIP to IEF increasing May 4th, then again October 11, and then again December 14, 2009 http://tinyurl.com/yaz4m2s

    The yield curve has been driving gold higher.

    Jack Chen's Chart Of The Gold ETF, GLD”, from JC's Buy And Sell Signals, courtesy of Stockcharts.com, shows how GLD broke-out November 3rd, 2009, rising to 106; and broke out again February 11, 2010 rising to 107 on February 19, 2010 … http://tinyurl.com/yca22dd

    Today gold, GLD, is still in break out mode, trading at 107.92.

    A final note on the chart of silver: the pattern is also called a “broadening top pattern” and Street Authority says: “When you see a broadening top, the market will eventujally drop.”

    Silver has been forming a broading top at 16 since September 2009, and then January 2008. Today it fell through the apex of it's broadening top to trade at 15.50.

  3. Vipul Ramaiya Says:

    Hello,

    My name is Vipul Ramaiya and I am currently pursuing CFTe, Level 2 candidate. I had a question regarding the chart of silver daily that you have shown above.

    My analysis says that silver in the daily chart has completed a head and shoulder formation, with the neckline broken below the 17$ mark, with pattern targets of 13$(similar to your interpretation).

    Secondly, I wanted to question you regarding your use of MACD settings of 3,10,16 against 9,12,26. Please explain the difference between the interpretation of both.

    Regards
    Vipul Ramaiya

  4. TheYenGuy Says:

    Corey, I agree that the likely direction is down for silver.

    I've always said: “silver — it's speculative and manic”, meaning it jumps up and down; the bear flag is a signal for continuing down.

    Well down .. for now.

    However, long term it could go higher … it could turn from being an industrial metal … to a poor man's gold as gold soars higher, as the yield curve steepens.

    A rising yield curve is seen in:
    1) the TBT to PST spread increasing April 13th, then again October 1, and then December 1, 2009 http://tinyurl.com/y8jm9ce
    2) the TIP to IEF increasing May 4th, then again October 11, and then again December 14, 2009 http://tinyurl.com/yaz4m2s

    The yield curve has been driving gold higher.

    Jack Chen's Chart Of The Gold ETF, GLD”, from JC's Buy And Sell Signals, courtesy of Stockcharts.com, shows how GLD broke-out November 3rd, 2009, rising to 106; and broke out again February 11, 2010 rising to 107 on February 19, 2010 … http://tinyurl.com/yca22dd

    Today gold, GLD, is still in break out mode, trading at 107.92.

    A final note on the chart of silver: the pattern is also called a “broadening top pattern” and Street Authority says: “When you see a broadening top, the market will eventujally drop.”

    Silver has been forming a broading top at 16 since September 2009, and then January 2008. Today it fell through the apex of it's broadening top to trade at 15.50.