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Silver Futures Bottom Out After A Massive Fall

08/13/04 01:39:15 PM
by Ashwani Gujral

Silver fell by 40% in April 2004, and then formed an accumulation pattern. If it breaks out above 6770, it should see a target of 7470. With the uncertainity in global markets and the terror alerts, silver prices will stay firm.

Security:   SI #F
Position:   N/A

The ascending triangle is an accumulation pattern that often forms after a decline in a stock or commodity. It is identified on a price chart as a series of ascending lows alternating with a specific high that acts as a resistance level. A breakout occurs when the specific high is taken out. Ascending triangles are one of the easier technical patterns to trade because they give an indication of the direction of their movement. Ascending triangles form because large players accumulate the stock/commodity at each of the lower levels before the supply completely dries up. Traders and investors should buy only after such formations are completed, after the bear market is over.

Figure 1: Daily chart of silver futures.
Graphic provided by: eSignal.
Looking at the daily chart, after a massive decline silver futures have formed an ascending triangle and now are beginning to break out above 6770. The target of this ascending move is calculated by extrapolating the size of the first reaction which is (6770 - 6100 = 670), over the breakout line (6770 + 670), leading to 7440. Meanwhile the ADX has started rising from very low levels, indicating a trend may be in the offing. Also, the daily RSI is shifting its range from bullish to bearish.

Figure 2: Weekly chart of silver futures.

On the weekly chart, silver futures stand at the critical resistance level of 6800. The beginning of a weekly uptrend would happen once 6800 is sustained for a couple of weeks. Because the weekly chart faces resistance while the daily seems to have bottomed out, there should be choppy movements around this level. Once 6800 is sustained, there should be a stronger run-up in silver. The ADX on the weekly chart still indicates consolidation as it declines. A trend is likely to be reflected on the ADX once the 6800 level is decisively crossed. The MACD has given a buy signal indicating an end to the 4-month bear market in silver. Until both the daily and the weekly trends are in sync, there is likely to be choppy movement, particularly if the larger trend is not strong.

Ashwani Gujral

He is founder of AGIP Securities Pvt. Ltd. which offers money management services, live chat rooms (during market hours) and independent technical analysis consultancy. The company has a big media presence from the likes of CNBC, NDTV Profit, and ZEE Business.

Title: Chief mkt strategist
Company: AGIP Securities
Phone # for sales: 9871066337
E-mail address:

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Date: 08/18/04Rank: 5Comment: Help! I just got a new printer and I can t remember what I did to capture the right side of the article - it s cut off when I try to print. Thanks

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