Pennants are one of the classic chart formations. Good quality pennants like the current one in silver can be useful risk: reward opportunities.
Pennants are one of the classic chart formations.
There are 2 essential elements of this pattern. The first is a vertical “flagpole” leading into the pattern. The vertical move is about urgent, high momentum, directional movement. This flagpole saw 10% wiped off the silver price in 4 days.
The second essential element is a tight triangle formation. This represents a brief correction. The logic of the pattern is that if price breaks out of the triangle in the same direction as the “flagpole” there’s a decent chance the high momentum move will resume.
This situation can create decent risk: reward opportunities -a relatively close stop on the other side of the pennant if it turns out to be a false break; but a decent shot at a fast directional move if the flagpole move resumes.
This pennant is supported by the 200 day moving average. At this stage, price is drifting around the lower boundary of the pennant which is not encouraging. The bears will want to see it break down before too long and not just dribble around the apex of the pennant. However, a clear break below the 200 day moving average in the near future could be significant.