Wednesday, May 7, 2014

A Different Silver Pattern

Not the kind you get on your flatware.  This kind:
I was looking at the one year curve on gold and noticed it seemed to show that gold had hit a bottom back at the end of '13 and was slowly working back out, so I thought I'd take a look at the one year silver chart.

Yes, I added the lines showing the flag pattern.  Where you draw the lines is the weakest part of technical analysis, and these are kind of arbitrary.  Still, if I measure from end of the chart (yesterday) out to where the lines meet, and then move that measured interval onto the scale to see how much time it is, it's about five months.  That implies that if nothing changes in the way this chart is developing it will have to break out of the flag before October. 

Which way will it break?  My WAG would be up, because the lower line (the support) has been so strong.  The price of silver has gone below $19/oz literally only for a couple of hours at a time in the last 13 months.  Every time it gets around where it is now ($19.25 as I write this), it typically bounces back above that support line.  Likewise, that upper line (the resistance) has been not only ironclad but remote.  Silver hasn't made a sustained move above that in a couple of years, back before they changed the trading rules on the COMEX and lowered prices.  The two lines converging out in October (-ish) become one of those "irresistible force meets immovable object scenarios. 

For newcomers, let me repeat my definition of Technical Analysis: drawing lines on financial performance charts and thinking those lines mean something.   In other words, if you're taking financial advice from some dood with a blog on the Intertubes, you deserve to lose everything.   Or as Rod used to say, this is strictly "offered for your consideration". 


  1. There are many ways to guesstimate what a stock, a future or PMs will do. Charting is an interesting method and has so many ways of explaining away bad predictions. A lot of the future of investments and PMs depends on majority beliefs and opinions. I think that what is happening with PMs is that when they were really high more people believed the economy was in the dumper and getting worse while now more people are believing things are getting better. Tomorrow or next month or next year opinions will change again. But sooner or later the reality of our terrible economic situation will dawn on most everyone and PMs will hit an all time high. The big unknown is when.

  2. Looks like a good time to BUY!

  3. Anon - that's well stated. The thing about charting is that every investment house has chart guy, and they all see the same things. It changes the charts' predictive ability if the big money driving the market gets warned about possible problems and acts to avoid them.

    To rephrase what DrJim says, everyone says "buy the dips". When you look at that chart, anything below about $20.50 is as good a dip as any. Unless you're buying tons and 25 cents/oz really matters.