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Bull Hammer in Silver

Scott Pluschau
|
Thursday, April 26th

There was some major downside price rejection yesterday in Silver which can be seen clearly in the bull "Hammer" daily candlestick pattern. This should make the bears think twice about their prospects. There is potential here for a near term change in trend, but it is important to remember Japanese Candlestick patterns are useless without confirmation.

The problem for the bulls is silver is still trading beneath the breakdown point in the "Descending Triangle". This is now a minor resistance area. The way things look right now, trading to the long side with my methodology would have a "negative expectancy". I have no issues watching silver go up today and have zero participation. I discussed the forming of the descending triangle pattern here: http://scottpluschau.blogspot.com/2012/04/bearish-pattern-of-day-silver.html

If traders like to trade silver only from the long side, they can look at yesterday's price action and claim this was a manipulative takedown when the Fed announcement came, or they could have taken an objective view of the price action sitting on the sideline due to the structure of the daily chart. Also, putting a position on just prior to any major market moving announcement is simply gambling in my opinion.

What to do now? Any bearish setups in the smaller degree timeframe and I will look to trade on the short side until the descending triangle pattern has failed or a reversal pattern negates it. The way the silver bulls have been hanging so tough lately, there is a legitimate reason to be cautious trading on the short side. I believe the aggressive play will be on the long side, but not yet. I am still of the strong belief that silver needs to get above $34.50 to even consider holding a long position. That may seem like it is a long way away and in contrast to the contrarian view, but I am no bottom picker and I don't look for bargains. "Price" should mean absolutely nothing to a trader.

(Click on chart to expand)

I do my best to tweet out my posts promptly on twitter/ScottPluschau
Consulting? ScottPluschau@gmail.com

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