Tuesday, July 12, 2011
The fifty day average closed today at $36.06 and is declining. It has one day left to decline and the average will then start to flatten out. Minutes before the 5:15pm close the market is at $34.15 and above this level. The five day moving average is currently set at $36.04 and rising where this line will cross through the fifty day moving at precisely 6pm EST today when the market opens. The five day average has already done this pattern with the ten and twenty moving average where a rising short term moving average crosses above a longer term declining average. To have a confirmed break above the fifty average it needs to break resistance on the $39.00 handle and then confirm a hold above. If and when this happens then the trend will switch to bullish. The fifty average is declining, but that does not make it bearish. The reason for that is because it just left the phase of flattening out and it has to break the big support level of $32.00 to begin a long term bear market. I'm not to optimistic that a long term bear market will occur and therefore it will be interesting to see how the next little while plays out as we work towards confirming a breakout. Volatility charts are showing that something is ready to brew (More on that later tonight)
The line of price is very similar to Ira Epstein swing line study which uses a calculation to determine if the trend is up or down and therefore never miss a new high or low. The swing today brought us to a new high and a trend change on this view of the market with a higher high. What it does is takes the three day front weighted average of highs, lows and closes. If the average is declining then I use the low as the variable and if its a rising average then I have the high as the variable.
Markets are looking to move into volatility as it seems that a stage one or two is in play. There are four stages which start with a stage 1 sideways consolidation from a bottom. Stage two is higher highs and higher lows uptrend and stage three is sideways from a top and four is a down. We just finished a massive stage four and the odds seem very probable now that big moves will come back in the market. With the higher volatility this means the targets on the longer term time frame of $32.00 and $26.00 on the down side become easier to hit as do the upside targets of $39.00 and $45.00 and beyond with high volatility. Expect big moves in the morning and for this chart to start a pattern of higher highs and higher lows.
Final Note - I have been seeing many formations on silver showing patterns of v and reverse v formations. This is when it goes down as fast it goes up. This has occurred on many different time frames and its possible that an inverted Bart Simpson head pattern maybe forming which is a pattern where a market goes up very vertical and then goes choppy up and down in a tight range and then crashes back down pretty much as vertical as the first move. For this to happen, Silver would have to move fast from $40 to $50 per ounce and its unlikely it will play out. I'll go over more on this later on.