Looks Like A Descending Triangle In Silver

Posted by barkand on July 6, 2011 under Classic chart patterns, Commodities | Be the First to Comment

Silver prices have quieted down very much ever since the dramatic run-up in the winter and subsequent drop in the spring. It looks to us like silver is forming a descending triangle, with the base established in mid-May. If that is the case, we should expect prices to break decisively through the high $33 area sometime soon. A month ago, Tom McClellan had suggested silver could fall further based on the price action after the Hunt brothers bubble of 1980. 

 

Looking at a couple other technical indicators, we get mixed signals. Or maybe it is just noise. On the chart below, we have overlaid the Fibonacci retracement levels for the triangle and also included RSI. We note that the last two tags of the upper boundary of the triangle occurred at Fib retracement points. It could simply be a coincidence. You will notice one other peak within the triangle did not happen at Fib levels. And if silver prices ignore the Fibonacci retracement and continue higher over the next day or two, it will probably kill our triangle theory. 

And then there is RSI. It is currently sitting just below 50, which often generates resistance to advancing prices. On the other hand, the last tag of the lower bound of the triangle did not produce a similarly low value of RSI. But why should it have done so? A descending triangle, by definition, will have less and less downward movement as the triangle develops. So the ratio of up movement to down movement should become less extreme. We realize that some people would have a bullish interpretation of the RSI divergence with prices, but we are not buying it.