Gann Targets and Geometry Map—The Next Silver Trade

10/27/2015 7:00 am EST

Focus: COMMODITIES

Though silver futures made an important low and are now rallying, the staff at Trading On The Mark, takes a technical look at the charts and emphasizes the importance in coming years to seek entries carefully and to maintain realist expectations for each trade swing in metals.

Silver futures appear to have made an important low and are now rallying. However, we believe the best way for traders to take advantage of moves during the next several months is to treat the current stage of the chart pattern as corrective. Here we show some of the events that could provide trading signals during the remainder of the year.

Silver and gold both have rallied from lows that we believe finished diagonal price moves down from summer 2013. Those diagonal patterns also had the correct placement to terminate the larger price move down from the 2011 highs. Even so, the big decline may have been only the first part of an even larger corrective pattern that could last several more years. This suggests that we should see both rallies and slumps going into 2017 and that the best trading strategy will be a base hits approach rather than looking for a home run.

On the weekly chart below, we have drawn the trend line that should break and act as confirmation that silver futures are moving beyond the i-ii-iii-iv-v diagonal Elliott wave pattern. We believe the price area near 20.25 to be the most attractive target area for a rally going into the end of the year based on a Gann square-of-nine analysis, a technique that works well with metals. Gann resistance in conjunction with the 38-week dominant price cycle suggest the areas on the chart where traders might look for long entries on pullbacks.

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For those who follow precious metals, we have prepared an additional post at our Web site showing the larger context for the current corrective move in gold and also showing how it could line up with developments in the US dollar index. Late in 2016—or perhaps sometime in 2017—we expect metals to break downward to complete the next stage of the big pattern they began tracing in 2011. After that time, we would expect to see gold and silver seek new lows. The charts emphasize how important it will be in coming years to seek entries carefully and to maintain realist expectations for each trade swing in metals.

By the staff at Trading On The Mark

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