Is SLV Set to Hit $50? A Look at the Action Through the Prism of the 3-Week Chart

By Jeffrey Cooper  MAR 27, 2012 9:05 AM

Jeff Cooper examines the potential for a rally in silver.


At the end of January 2011, the iShares Silver Trust (SLV) turned the important 3-Week Chart down (point B on the chart below).

This turndown closely coincided with a low in terms of time and price, followed by a near 100% advance.

The $26.03 low prior to the explosion occurred during the week ending January 28, 2011.

As students of W.D. Gann know, markets often move in 90-degree increments in both time and price.

90 degrees from the low, SLV hit a price of $48.35 during the week ending April 29, 2011.

On the Spiral Chart, or Square of 9 Wheel, a full revolution up of 360 degrees in price from 26 equates with 50. So, SLV was just shy of satisfying a perfected 360 degree move in price in just 90 degrees in time.

Note that following the initial thrust up, the Weekly Swing Chart turned down on the week ending March 18. The first ‘turndown’ following a breakout or thrust generates my ‘T-D’ or Touch Down (Turndown) Setup.

In other words, the first turndown (in this case we are looking at the weeklies) typically sets up a buying opportunity with a solid risk/reward.

As it happens, the first turndown in SLV on the week ending March 18 defined the mid-point of the move in price.

The market often (not always) gives a graceful exit, but not so much in parabolic runs, as was the case with SLV. When the weekly chart next turned down, it took the express back toward the level of the prior March turndown. Markets have a memory of where prior buy pivots and sell pivots are. In other words, markets know where the bodies are buried.

The first turndown of the 3-Week Chart following the April peak occurred on the week ending July 1, 2011. This defined a low and led to a seven-week rally (1/2 the prior 90 degree parabolic run) from $32.50 to $42.78, which tested near the low of the high-bar week.

In the process, the 3-Week Chart turned back up on the week ending July 22.

Note the Weekly Plus One/Minus Two Buy pattern on the week ending August 12, 2011.

This weekly pattern played out because the 3-Week Chart was pointing up, and was then followed by two consecutive lower weekly lows.

There are a few important things to observe from this point in the weekly chart:

1) Note that the Weekly Plus One/Minus Two Buy setup worked but quickly led to a reversal week, an outside-down week on the week ending on August 26th, 2011. This reversal was a warning as it occurred on a test of the low of the high-bar week.

2) SLV did not fall apart immediately but put two weeks ‘on the side’ before another leg down played out. Notably, that leg accelerated when SLV offset/violated the prior buy signal, the pivot low of the Plus One/Minus Two Buy from the week ending August 12, 2011.

3) What is important to observe is that when the 3-Week Chart turned down again early in the week of September 23, SLV waterfalled once again. This Down, Up, Down Sequence in SLV defined an upwards correction/consolidation and timed the next crash, a more than 10-point decline in a matter of days.

At the tail end of 2011, SLV satisfied 3 drives down on its weekly chart, in the process making a round trip from the buy pivot that occurred in late January 2011, near 26 on the one-year cycle. SLV traded just below 26 on the week ending December 30, 2011 but tailed up to close the week at 26.94.

Note that the 3-Week Chart has remained pointing down ever since it turned back in late September.

Again, 90 degrees forward from that late September turndown, SLV satisfied a potential 3 drives to a low.

Potentially bullish, note that the 3-Week Chart turned back up immediately following the late December 2011 low. It also acted bullish subsequent to that turn up.

In other words, rather than defining a high after the 3-Week Chart turned back up on the week ending January 20, 2012, SLV continued to rally.

Note that this turnup marked the 1-year anniversary of the kickoff pivot for the explosion one year prior.

The market has a memory.

The first turn down of the weeklies occurred on the week ending February 17, 2012, defining a nice low for a quick $4 extension.

However, early in March, SLV was once again repelled by its overhead 50-week moving average as was the case on the first attempt at the end of October, 2011.

The recent attempt early this month to recapture its 50-week coincided with a declining trendline defining resistance.

The technical combination of resistance of a declining trendline and its overhead 50 week moving average caused SLV to retreat. In the process, SLV turned its 3-Week Chart down last week.

Because SLV had the benefit of a potentially bullish pattern of 3 big drives to a possible low on the weekly, it set up a good risk-to-reward buy setup on last week's turn down of the 3-Week Chart, leading me to send out an alert to Daily Market Report subscribers to take a long pilot position in ProShares Ultra Silver (AGQ), the leveraged silver ETF.

This morning, the 3-Week chart is likely to turn back up once again, and the ensuing action will be important to observe. Because a Bowtie of the overhead 20/50 day moving averages is just overhead at around 32.15, defining the level where the 3-Week Chart would turn up, the normal expectation would be for some kind of reaction.

That being said, SLV does not owe the bulls (or the bears for that matter) a pullback. SLV has triggered an Angular Rule of 4 Buy set up on its dailies on a gap, and while that gap could be filled, there is nothing saying it has to be filled.

Note that in tandem with the 3-Week Chart turning up this morning, the 3-Day Chart has also turned up pre-market so the action from this point will be interesting, especially as a Weekly Angular Rule of 4 could be triggered on trade above the above noted 3-point weekly declining trendline around $34. If triggered, this could generate a powerful continuation signal as it would coincide with a recapture of the 50-week moving average also around $34.

Interestingly, the Monthly Swing Chart would currently turn up in April on trade above the March high of $34.64. Once again this $34 level looms large. Trade over $34.64 with authority with ensuing bullish action suggests the possibility that SLV may trade up to $50, a level that was shy of being perfected on last year’s run up.

Position in AGQ

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.