- Dugald Malcolm, Montreal, Canada

While Eric and I currently hold a longer term bullish view for silver, I decided to take a technical look at the short term price action. I find this provides a good clue in establishing timing for points of entry to or exit from a position. Currently, silver seems to be at a turning point, the outcome of which could very well determine such a short term buy or sell signal.

The short term daily chart is showing silver as being in a Symmetrical Triangle pattern. This is a formation to which one must pay close attention as it can be an important reversal pattern. While it does not forecast in which direction price movement is going to go, it does typically point to the fact that a decisive movement is about to take place. What characterizes a decisive move is a close above or below the pattern lines by around 3% with any move to the upside accompanied by increased volume. While the chart below shows the Continuous Contract Index for silver which does not display volume, one can use the iShares Silver Trust ETF as a suitable proxy to keep an eye on volume increases.

A possible hint at possible directional movement might come in looking at the stochastic and/or the MACD. As indicated on the chart, both technical indicators are in downtrends. It could be possible that a break to the upside in price action might be preceded by a break of one or both of these two indicators from their existing trends.

Another hint comes in examining the moving averages. While the price of silver is trading below its short term 50 day moving average, strong support is found at the longer term 200 day moving average. This important level of support might prove a formidable floor from which price movement might bounce. Fortifying the significance of this level of support is the fact that it also coincides with the bottom trend line of the Symmetrical Triangle pattern.

It is crucial to point out that while this strong level of support is important in that it can possibly provide a level off which prices may bounce, it is even more significant should the levels be broken. Because of its strength any breach to the downside should be taken very seriously as it could very well represent a significant pullback in silver prices.