- Posted by PeterLBrandt on April 15th, 2014 at 9:14 am
Bear market in Silver may be entering its next (and final) down phase
Critics of price charting charge that charts only show for certain where a market has been. I completely agree. These charges are valid. Yet, understanding where market has been can provide historical context — and this historical context can be useful in anticipating the future.
With the above disclaimer in mind, let’s take a look at Silver’s chart history.
Firstly, the monthly price chart shows that Silver remains in a long-term bull trend from the 1932 low. Yet, long-term trends experience sudden and violent counter-trend reactions. Such was the case in the 1980 through 1993 decline during which Silver priced declined by 93%. Silver bulls should know they can go broke being right on the metal’s long-term direction.
The Silver market is currently undergoing another significant price correction, as shown on the weekly chart. This decline can be broken down into several classical chart configurations or phases.
Phase A was the blow-off exhaustion top experienced in April 2011. This blog correctly identified this as an important market top. See here (How do you spell bubble … SILVER, Apr. 24, 20111) and here (8 years of Silver supply changed hands last week, May 1, 2011). The blow off was immediately followed by a 35% price decline — with Silver bulls declaring a conspiracy.
Phase B was a retest of the top, taking the form of a bear wedge.
Phase C, lasting from October 2011 through April 2013, represented a rectangle. Phase D was a textbook horn or sloping top in the final stages of Phase C. It was during this horn, on February 20, 2013 that this blog carried a post titled “What’s happening to the metals – a chart update.” This post predicted a sharp decline in precious metals, specifically identifying a target of $1250 for Gold, the priced at $1570. The completion of the continuation rectangle in April 2013 set a still-unmet target of 1660. Remember, targets are not sacred. Also keep in mind that while I have made some insightful calls over the years, I also have many market pronouncements leading to a over-sized serving of humble pie.
Phase E has been the unfolding congestion since the June 2013 low. This congestion appears to be taking the form of a descending triangle with support in the 1800 to 1850 zone. Should this support give way, then the 1660 target would be quickly met, with a further target down to 1350.
Caveat: Under rare circumstances a descending triangle might be resolved by an upside pattern completion. As such, a close by Silver above 2250 would negate the descending triangle labeling.
Note: This type of analysis is normally distributed only to members of the Factor subscription service (see navigation bar above).
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Peter Brandt entered the commodity trading business in 1976 with ContiCommodity Services, a division of Continental Grain Company. From his start in the commodity industry, Peter's goal was to trade proprietary funds. But, he first needed to learn the business. More »