Where is silver headed next in 2012? We can forecast silver price targets with three weekly chart patterns that are in development. Even if you aren’t into technical analysis, the charts are worth a look. Physical silver bullion buyers and long-term silver investors may still take comfort from these chart patterns because they present a long-term view and potential target that serves as context for the day-to-day swings as we move forward towards Q3 2012. Or should we say QE 2012?
This weekly silver chart may support predictions by those silver gurus that primarily take a fundamental view of silver prices. Is now a good time to buy silver? Our bias is shown, but the patterns aren’t confirmed. We are at a critical level right now.
Past, Present and Future Patterns May Forecast 2012 Silver Price Targets
Consider this post a Silver Carol, with apologies to Dickens. Tonight, we are to be visited by the ghosts of Silver Past, Present and Future. These ghosts may give us insight into where the price will be in 2012. We can conditionally forecast silver’s price, depending on how these patterns play out, and perhaps see the source of many seemingly random predictions for the price of silver.
One of our silver chart patterns has already completed, but still provides value because it has not yet reached its price target. Another pattern is on the verge of completion. We need a breakout to the upside and subsequent confirmation. Action in silver now is critical. Our final pattern is a much larger one and has been developing in silver for many months. It could take many to play out, so we should be careful in citing it as a bullish argument at the present time.
For this exercise, we are going to use the iShares Silver Trust ETF (Symbol: SLV). I know, you might prefer to look at Sprott’s Physical Silver Trust (Symbol: PSLV), Spot Silver or for the purists who hold nothing but Physical Silver, a weekly plot of prices for a 10 oz. silver bullion bar. SLV is convenient for this exercise and to date, it continues to trade inline with silver prices. So agree or disagree with the trading vehicle used here, but consider the patterns and then make your silver purchase or trading decisions with your own poison of choice.
It has been 34 trading days since silver prices peaked on February 29th. To some, it has felt like an eternity. Yet the price action in silver over the past several weeks remains constructive and we can see this by stepping back a bit and looking at the weekly SLV chart.
Here are the three patterns:
Past Silver Pattern: Bullish Falling Wedge 1
The falling wedge formed by the Silver Smash in May and September of 2011, along with their respective bounces and subsequent continuations lower, have been highlighted in purple. This pattern followed a perfect 5-Wave count, before breaking out of the pattern in January of this year. The breakout from this wedge has a price target just over above $41.50 per share on SLV. This target has not yet been achieved. We’ve witnessed the initial move higher and our first pull-back.
Present Silver Pattern: Bullish Falling Wedge 2
In turquoise, we see a second bullish falling wedge on the weekly silver chart. This is a smaller wedge, formed by the recent pullback from the early March high, achieved as the first wave of a breakout from our first bullish falling wedge. Note that the end of this wedge takes us to today. Silver needs to break out very, very soon for this pattern to be valid. A breakout would project to just under $37 per share.
Future Silver Pattern: Inverse Head and Shoulders Bottom
Our final pattern, still in formation, is an Inverse Head and Shoulders Bottom, illustrated with an orange channel. This H&S bottom is formed by the end of our first bullish falling wedge as the left shoulder and head, combined with the current bullish falling wedge, which forms the right shoulder. The right shoulder needs to complete itself. Doing so would achieve the target on our second bullish falling wedge. The target on the Inverse H&S Bottom projects to just under $47 per share. As we eyeball the chart, it looks like it could be achieved within the 3rd quarter of this year.
A Note on the Technical Indicators and a Word of Caution
Generally, technical indicators seem too random and lag too much to be useful. Those who find value in them though may see positive divergences in RSI and MACD on the weekly silver chart. Further, Stochastics are dipping into oversold territory. Generally, traders will suggest a %K / %D crossover is necessary, perhaps twice, before a “go long” confirmation is achieved. That looks like it could take weeks, forcing the patterns and price targets to failure. Are you willing to wait?
Please be aware that two of the 3 silver chart patterns outlined here have not yet completed. There is no confirmation on them, so this post primarily provides something for which we can be on the lookout. It is not a forecast. TA naysayers are fundamentally right, and PMBull believes what makes most sense is to simply accumulate physical silver when you have extra fiat (dollars) to spare.
Further, many will argue, with good reason, that chart patterns and technical analysis in silver is a fool’s exercise. The price is manipulated to the nth degree and algobots employed by High Frequency Trading firms cause severely manic-depressive daily reactions to pronouncements by various Fed Members.
While true, and we have just witnessed this crazy up and down action over the past sever trading days, try going back and looking at the weekly chart above. While silver has indeed been declining, the relative volatility appears to have been compressing. In fact, we may even have a coiled spring, poised to break to the upside. On a daily basis, silver may still very well experience extreme volatility, but understand that all the silver chart patterns identified above have been forming inside of a rather solid and consistent price channel.
Can we break to the downside? Certainly, and we shouldn’t put it past those in charge of silver’s price to take us outside of support levels along the way, to shake the very last weak hand out, before silver begins its ascent higher.
AND HERE WE GO!
Now let’s see what happens post-COMEX trading. Can reversal occur there? Silver was smashed pre-statement. The speculators looking for Dovish statements, day-traders gambling on QE language etc. sold the news as well. Who is left to sell, and who is left to buy? Interest is at major lows (as is Physical Silver available for delivery). The damage was already done pre-statement. Can it go lower, or is a reversal coming, without Ben’s help? Sentiment should be at an all-time low here, so this would be the time to load up on physical silver, would it not?
No hints at QE3 evident in statement, so we aren’t likely to get an explosive move the upside.
Still may reverse higher. First reaction isn’t always the final reaction!
Looks like reaction to Fed is down. Bad call for PMBull on the trading front. Reasons for stacking physical still stand.
If waiting for a smash to buy silver, this is it. Silver is at $30.25 as this is being typed. Many want to buy under $30. SLV remains within the 3 patterns detailed above and is currently trading at $29.41, having bounced a small bit off the low. Buying into major sell-offs always works better than buying on major rallies. Checking the charts, Volume at Price is all red right here, and this is evidence of gunning stop losses. We usually see reversals off that.
We are still inside BFW2, which is the right shoulder. However, we are below the right shoulder as it was depicted in our weekly graph, including the extended second orange support line. That has to be redrawn, so the charts, as shown, aren’t working, but none of the actual patterns have yet been invalidated. Silver is a highly volatile animal with big swings! So far… Ouch!
Notice how silver completely reversed that final dip in on the Comex after close?
Very ugly. Down over 3.5% so far today. One more shakedown into the last few minutes of Comex? You can see it do its dip on the Kitco Silver Chart.
As much as we wanted this to be a simple long term view, we may redraw this chart as a daily, to see if any interesting long trade opportunities present themselves on this morning’s aggressive move lower.
On the weekly chart, we’ve extended beyond 5 waves (as crude as they were) within BFW 2, yet remain inside it. Price is still working on the right shoulder formation on the developing H&S pattern. Price is now below the orange “channel” that was drawn to represent the Neckline and Shoulders, so it will need to be adjusted downward. It sloped up a bit too much to begin with.
EDIT: If we extend the lower, shorter orange “channel” line connecting the potential shoulder troughs, this morning’s move still respects the projections. We should note that these lines are not based on any fundamental trend-line charting rules (the “Head” in our H&S pattern seriously violates them), but they are a convenient way to reflect the shoulders. This “Smash” remains within all pattern developments. This could be a beautiful entry-point for a short-term trader that enjoys trying to catch falling knives. They will get a much lower entry than anybody buying on the original posting of the weekly chart.
Funny, all it took was the comment below for Apple to immediately pop higher on the 1-minute chart. SLV did the same.
Perhaps the HFT Algobots are fading PMBull comments. I’ll have to check the server logs and stop typing here.
Nasdaq looks like it is on the edge of a cliff. Apple bounce possibly over. If we get a dive, commodities could fall with it. The other day, Gold and Silver traded contrary to stocks, which was different. I’m not counting on that to continue. Keep some dry powder for any hard dips.
By the way, PSLV was below a 5% premium again today. Love it when PSLV premium dips hard, and prices are at a possible inflection point.
Watch live 24 hour silver charts on the main PMBull Silver Price page.
It looks like we are getting a bit of a smash here into the Comex close today. On a short-term silver chart, this may provide an entry opportunity. The smashes are frequently reversed later in the access markets.