The Silver Chart is Interesting Here

Last year Silver came out of a summer base in August to rip over 23% in a month. We talked about it just before the breakout because momentum had been diverging positively at the time. As prices were making fresh lows into June, RSI was putting in higher lows. But after that explosive move, Silver has just been deteriorating lower for six months. And here we are, right back to where we started.

This is a daily bar chart of the iShares Silver ETF. You can see that for the past month, silver has been consolidating in this pennant looking pattern of lower highs, but also higher lows, right at the breakout level from last summer. There is memory here:

I think that the resolution of this pattern could set the stage for a nice move in the metal. RSI isn't shown here because we're not seeing any divergences. Just lower lows in momentum with lower lows in price. That's definitely one for the bears. The bulls, however, have on their side the fact that Silver prices rallied hard from these levels in August. Markets remember those things.

The base of this small pattern is about 4.2%. So after a move out of this thing, that would be the initial target. But the true tests should come around former support and resistance levels. A resolution to the upside could take $SLV up towards the January highs above $31. But a downside breakdown out of this pattern should take it down to last summer's lows, and could be devastating for this commodity's chart.

Typically these types of patterns resolve themselves in the direction of the underlying trend, which is down in this case. But the fact that we've been sitting here for an entire month right at last summer's breakout level makes me think that the bulls still have a chance.

I don't really care either way, we'll just trade in the direction that this thing resolves itself in. But I think it's worth pointing out that this is happening at an important level and the outcome could be critical to the chart of Silver going forward.

Also See:

Yes The Action in Silver is Constructive (Aug 14, 2012)

Tags: $SI_F $SLV