Silver And Gold Are Ready To “Tip” Their Hand

I want to discuss what I’m seeing in the silver and gold charts now that I’ve had a chance to review them in greater detail after the dramatic two day plunges we say over a week ago.

I see clear bear pennants forming in both charts that indicate lower prices are on the way.  The selling is not over.

First let me preface this by discussing what exactly a bear pennant is. A bear pennant is seen at various parts of a stocks or equity’s trend. I feel that what has formed in both the gold and especially the silver chart is a bear pennant at the beginning of a downtrend.  The usually definition of such a formation usually requires that the pennant starts to form after a brutal “two day plunge” as we saw when silver and gold sold off. After a dramatic two day plunge, the market has a short-lived consolidation period before the rout continues. We must have volume confirmation of the downward break which we clearly had in both metals.

Let’s see how this applies to the silver chart.  You can see that silver has formed a bearish pennant indicating that the market is simply pausing before the continuation of the trend or initial move. I maintain that we probably see 17.50 – 18.00 before the bleeding is over as I have discussed in my previous posts.

As for gold, it has formed a bearish flag.  This is similar to a pennant in that it occurs after major break in direction.

The bear flag occurs in down trends and is exactly the same pattern as the bull flag, simply flipped upside down. The lines which form the flag can be either flat or pointed upward, and the pole of the pattern is then formed by a line encompassing the move downward which sets up the bear flag consolidation. The pattern is seen as the market potentially just taking a “breather” after a big move downward before continuing its move downward and is therefore referred to as a bearish pattern.

I am of the view that simply by observing the candlesticks in the silver chart especially, that this consolidation following the big break down is just about complete and we should see a resumption of the move down. It would take a close above $1,441 to place confidence in a possible test of the next fib at $1,470.  Conversely, if we fall beneath the flag line, we could make a move to re-test the lows put in after the sell-off.

Silver in my view looks weaker.  It would take a close above the pennant’s top line to negate the pattern and send silver up to its first fib level. Conversely, a break, and we could easily be on the way to test the sell-off lows pretty quick.  I am of the view that we are simply pausing here before we break lower in both metals.  I would need strong conviction to the upside to change that view.