Silver in Process of Reverting to Mean
A close look at where silver’s price is positioned at this stage of its developing long-term bubble – and using Bump-and-Run and Dead-Cat Bounce pattern analyses – suggests that silver is on its way to returning to its long-term mean. Words: 624
So says Nu Yu, Ph.D. in an article edited by Lorimer Wilson, editor of www.munKNEE.com (It’s all about Money!), to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Dr. Yu goes on to say:
Where is Silver Positioned in This Bubble?
It is interesting to compare the graph of “Main Stages in a Bubble” by Dr. Jean-Paul Rodrigue (see below) with the silver chart that follows. It shows that, after a brief “return to normal”, silver is now moving into the “fear” area of the Blow off Phase as it “returns to the mean.”
What is Bump-and-Run Pattern Saying about Short-term Price for Silver?
A Bump-and-Run pattern typically occurs when excessive speculation drives prices up steeply. According to Thomas Bulkowski, this pattern consists of three main phases:
- A lead-in phase in which a lead-in trend line connecting the lows has a slope angle of about 30 degrees. Prices move in an orderly manner and the range of price oscillation defines the lead-in height between the lead-in trend line and the warning line which is parallel to the lead-in trend line.
- A bump phase where, after prices cross above the warning line, excessive speculation kicks in and the bump phase starts with fast rising prices following a sharp trend line slope with 45 degrees or more until prices reach a bump height with at least twice the lead-in height. Once the second parallel line gets crossed over, it serves as a sell line.
- A run phase in which prices break support from the lead-in trend line and plunge lower in a downhill run.
As shown in the chart as of 6/28/2011 below, silver has been developing an intermediate-term Bump-and-Run pattern since last September. It only recently broke support from the lead-in trend line and entered into the Run phase to plunge lower in a downhill run last week.
The next downside price target is projected at around $29/ozt. by the target line which is parallel to the lead-in trend line and is distant from the lead-in trend line with the same lead-in height.
What is Dead-Cat Bounce Pattern Saying about Short-term Price for Silver?
In addition to being in the Run phase of the Bump-and-Run pattern silver is in a Dead-Cat Bounce pattern. A Dead-Cat Bounce pattern has three major phases:
- An initial plunge phase during which a sharp decline of 25% to 45% is experienced over several days.
- A bounce phase during which there is a short-term recovery of between 15% and 35% in 1-5 weeks.
- A post-bounce decline phase during which there is a slow decline over a 2-10 week period to a low somewhere between 15% and 45% below the bounce top.
What’s Next for Silver?
- the initial plunge phase in early May with a decline of 31% (i.e. from $48.42 to $33.53) and
- the bounce phase at the end of May going up 15% (i.e. from $33.53 to $38.48).
The post-bounce decline phase has been ongoing since the early part of June and has the potential to drop 15% to 30%. A 25% drop would, incidentally, bring the price of silver down to $29/ozt. which would be in keeping with the abovementioned Run phase of the Bump and Run pattern.
The above chart patterns suggest that silver could drop below $30 per troy ounce soon on its return to its long term mean. It is the time to re-check fundamentals, reality, and risk for silver when Fed’s QE2 ends.
Related Articles of Interest:
- Is Now the Right Time – and Price – to Get Back Into Silver? http://www.munknee.com/2011/05/is-now-the-right-time-and-price-to-get-back-into-silver/
- Why Silver at $398.52 is a Realistic Parabolic Peak Price http://www.munknee.com/2011/07/with-gold-at-10000-silver-could-reach-714/
- Martin Armstrong Asks: Will Silver Crash in 2011? http://www.munknee.com/2011/05/martin-armstrong-asks-will-silver-crash-in-2011/
- At What Price Should We Begin Buying Silver Again? http://www.munknee.com/2011/05/at-what-price-should-we-begin-buying-silver-again/
- “Three Peaks” Pattern Suggests Gold to Decline 17% into June! (previous post by Dr. Yu) http://www.munknee.com/2011/05/%e2%80%9cthree-peaks%e2%80%9d-pattern-suggests-gold-to-decline-17-into-june/
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.