It’s always such luck to find something when you really need it. I didn’t update the monthly chart for silver from July as we need to give time to the market for visible changes. I am very thankful to regular readers who comment on my posts and doing so; they give me a feedback with a clue of what you really need or what is your biggest concern. Last week one of the readers asked why I put short term setups with a bullish view. I answered that as long as the market broke above the medium-term downtrend, we can watch the upside. Today I would like to update the monthly chart as it is always better to see once than to read/hear about it many times.
This time I changed the usual order of charts. I would like to start from what we all didn’t see. The exotic pattern was detected, and I am glad to share it with you below.
Chart 1. Silver Monthly: Cup & Handle Pattern
Chart courtesy of tradingview.com
The exotic pattern we are talking about is the Cup and Handle Chart formation. Amazingly, but we’ve already seen this pattern this past March, but on the daily chart. This time it was shaped on the monthly chart.
The shape of the Cup is not perfect as it has a concave bottom, but at the same time, the Left Lip and the Right Lip are almost at the same level. The price is in the Handle already and sits above the important 61.8% Fibonacci retracement level ($16.47). That’s why at the start of this post I have mentioned our luckiness to detect this pattern when it has been almost fully shaped, and it will be ready for trading soon.
The setup is quite simple. The conservative approach requires waiting until the breakup of the Right Lip’s top above the $21.12 mark before entering a long trade. The target is located at the distance of the Cup’s depth ($7.70) added to the Right Lip’s top and is set at the $28.82 mark, quite ambitious, isn’t it?
Some traders take action before that on the breakup of the first resistance, which is located on the upper side of the Handle ($18.50) as they consider it as a Bull Flag pattern. If some of you choose this method, then it is highly recommended to limit your risk below the minimum price level within the Handle (currently $16.11) after the breakup.
Below I put the classic monthly chart to show you where we are and which barriers could arise for the Cup & Handle pattern’s target.
Chart 2. Silver Monthly: Classics Is Immortal
Chart courtesy of tradingview.com
I remind our regular readers about the breakout of the multi-year downtrend channel (red) which took place this June, and as long as we are above it, we should watch the upside keeping with the market’s price action. After the good rise to $21+ level, silver started a consolidation, and it’s a regular market behavior. Breakouts are usually followed by the pullbacks to the broken trendlines. Market participants book profits and think over their next steps.
The pullback touching point is located within the $15.00-15.20 range. This complies with the depth of the 78.6% Fibonacci level located at the $15.2 mark (look at the Chart 1). The RSI is a very good indicator of market behavior as it confirmed the breakout is breaking above important 50 level in the summer. Now it dipped back below the 50 level reflecting current pullback. I guess we will see RSI above the 50 again when the price will break up the Handle. It is necessary to confirm the upside move.
Now let’s talk about the possible barriers on the way to the upside. The right blue rectangle shows the Fibonacci Resistance Area between the $27.43 and $35.97 levels. This area correlates with the former consolidation zone highlighted by the left blue rectangle. The Cup & Handle’s target aims between the 38.2% and 50% Fibonacci levels where the first serious barrier is positioned.
There are also some minor resistance levels not shown on the chart to avoid overload. The first one is located at the recent high plus 2014 tops area at $21-22 levels. The next one is based at the top of the red falling channel at the $25.10 mark.
Now we have a clear picture of the current price development. Let’s see how it goes!
Intelligent trades!
Aibek Burabayev
INO.com Contributor, Metals
Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
Dear Aibek,
After getting some initial required gain, There is also a probability of forming Triple Tops Pattern, . So This formation will be valid and can be applicable, only after confirmation through the Cross over of 7.700,which is a neck line of this pattern and further sustainability above that mark, at list for 3 to 4 Months.
Dear Rasesh,
You inspire me to show more and to see more, I am very grateful to you! Regular readers like you give me a hope!
Could you share the picture link to see which triple top I am missing. I am eager to see it.
Best wishes,
Aibek
Dear Aibek,
I really love your learning eagerness.
As i have no any picture link, so i explain just through some illustration. First, i am talking about "Probable Triple Tops" which is not formed yet, however, as per Chart No. 1, if after getting some gain from handle part, but only up to right lip level, which is stood at around $ 21.12, with a permissible + - margin of 3%. After touching this level, and if fails to cross over, then and then we will find there a Triple top pattern. Please also let me give an idea and your opinion, whether my study is applicable?true?
With warm regards,
Rasesh Shukla
Dear Rasesh,
I think that what you are talking about is called Double Top pattern.
The first top you is too far and divided by a large cave/cup.
But anyway the effect of this pattern is the same as for Triple Top.
Let's see how it goes!
Best wishes,
Aibek
Dear Aibek,
When it form a successive new top from down, i think, it should be considered as Triple or Multiple Tops.....also i think, there after, the same earlier formed Cup also ruled-out, or cant consider. Iam just arguing this to clear doubt, and also to get second expert opinion to fine tune my study.
All The Best...
Rasesh
Rasesh
You might mention that there's a potential mega cup & handle pattern in silver (about 37 years old and still forming). $50 in JAN 1980 to $50 in APR 2011 forms the big bowl. Then for 4.5 years silver drifted lower to the bottom of the handle at $14. Since DEC 2015 we've been generally going upwards on the handle. After we hit the $50 rim again, it should move sharply higher. Of course, a return to $50 silver could take years - or not.
Dear H. Muller,
First of all thanks for such a great insight! I uploaded it at the following link for all readers to see it
http://pasteboard.co/9LZjhLOvX.png
Indeed, we are in a MEGA Cup & Handle!
But this is not all, we have the same pattern in intraday 4-hour chart )))). Link https://www.tradingview.com/i/Vf9Y8A8U
Amazing like Russian matreshka: Pattern in the pattern in the pattern.
Best wishes!
Aibek
No mention of traders psychology to explain this pattern makes it a mere geometric exercise without any foundation.
When I read my outdoor thermometer each day it is simply a geometric exercise showing the temperature without any reference to the thermodynamics that explain the action of the gauge. Despite this deficiency, I am still able to decide whether I should be wearing an overcoat and a wool hat or a short jacket based on the numbers it shows me.
Would my behavior change if my thermometer was accompanied with a physicist to explain the temperature?
I think he is saying there really isn't any noteworthy predictive value to this or any other chart formation. If you read "Candlestick Charting Explained" you'll see that there is no chart pattern/formation that is accurate bull/bear signal more than 50% of the time.
I respectfully disagree. He says, "No mention of traders psychology to explain this pattern." As I suggest, this is like saying I refuse to wear an overcoat despite it being 30 below outside because I have not yet received an adequate explanation for such a low temperature.
By the time a rational explanation is given for any market move (assuming there ever is a single explanation -- which I also doubt), the move is often over.