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Artful Trader

Bull v Bear: Two chart patterns from two key markets, by Chris Kimble

Chris Kimble shares his expertise on two chart patterns; one in a bull market and one in a bear market. Kimble walks through these two examples and explains why they've formed, but more crucially, what to expect next.

 

Bull market 

Could silver be forming a bullish cup & handle?

It’s possible. Silver peaked at $50 in the early 1980s and then proceeded to fall for years. It peaked again at $50 in 2011 and has been in decline since then.

The two peaks at the $50 level could be the top of a bullish cup and handle pattern.

One thing is for sure: Silver has been very weak over the past 8 years, having declined by more than 65%, creating a uniform falling channel.

Silver’s recent move higher meanwhile has it breaking above the falling channel (1). For me, this breakout sends a bullish message with the next important resistance test for Silver coming into play at the $17.64 level.

So what would it take for Silver to fully realise a multi-decade bullish cup and handle pattern? A clean break above the $50 level which, it must be noted, is still a long, long way off.

 

Bear market

Will a 20-month bearish divergence in the S&P500 impact stocks? 

Does history ever repeat itself exactly? No. Do stock market patterns and momentum sometimes look the same? Yes.

This chart looks at the S&P 500 over the past 20-years, on a weekly basis, with momentum in the top section.

In 2000 and 2007, weekly momentum started experiencing a bearish trend and recording lower highs, while the market was creating higher highs at each (1).

Momentum was experiencing a bearish/negative divergence with the S&P 500 on both occasions. Once support broke 2000 & 2007, selling pressure took over.

Over the past 20-months, momentum has created lower highs (2), while the S&P has created higher highs. It's now to be seen whether a similar momentum pattern to the past will be realized. Indeed, the S&P could experience selling pressure if support happens to break (3).

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

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