Where is Silver Positioned in This Bubble?
As shown below, it might be interesting to compare the silver chart with this graph of "Main Stages in a Bubble" by Dr. Jean-Paul Rodriguez. It shows that, after a brief "return to normal", silver is now moving into the "fear" area of the Blow off Phase as it "returns to the mean."
What is the Bump-and-Run Pattern Saying About the Short-term Price for Silver?
A Bump-and-Run pattern typically occurs when excessive speculation drives prices up steeply. According to Thomas Bulkowski, this pattern consists of three main phases:
As shown in the chart as of 6/28/2011 below, silver has been developing an intermediate-term Bump-and-Run pattern since last September. It only recently broke support from the lead-in trend line and entered into the Run phase to plunge lower in a downhill run last week.
The next downside price target is projected at around $29/ozt. by the target line which is parallel to the lead-in trend line and is distant from the lead-in trend line with the same lead-in height.
What is the Dead-Cat Bounce Pattern Saying about the Short-term Price for Silver?
In addition to being in the run phase of the Bump and Run pattern silver is in a Dead-Cat Bounce pattern. A Dead-Cat Bounce pattern has three major phases:
What's Next for Silver?
The post-bounce decline phase has been ongoing since the early part of June and has the potential to drop 15% to 30%. A 25% drop would, incidentally, bring the price of silver down to $29/ozt. which would be in keeping with the abovementioned Run phase of the Bump and Run pattern.
The above chart patterns suggest that silver could drop below $30 per troy ounce soon on its return to its long term mean. It is the time to re-check fundamentals, reality, and risk for silver when Fed's QE2 ends.
If you found the above article of interest, you may wish to read my Market Weekly Update on gold, silver, the U.S. dollar and the S&P 500 by going here.
Dr. Nu Yu (fx5186.wordpress.com/), managing partner and co-founder of Numarkan Investments and an affiliate of the Market Technicians Association, is a frequent contributor to www.munKNEE.com "It's all about MONEY!" and www.FinancialArticleSummariesToday.com "A site/sight for sore eyes and inquisitive minds". Dr. Yu can be contacted at firstname.lastname@example.org