SLV Candlestick Points to Reversal

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By Scott Pluschau for ETF Digest

NEW YORK (ETF Digest) -- This is for the Japanese Candlestick junkies out there. In SLV there was a "Bullish Belt Hold" pattern with confirmation. Knowing Japanese Candlesticks are there and applying them in the hope they work is a bad idea in my experience. I do not place trades on these signals alone. What I think is important in Japanese Candlestick analysis, and why I appreciate them, is for getting a better understanding of the psychology beneath the auction.

The bullish belt hold forms when the direction of the security is down followed by a big gap down from a prior day, such as we had on Sept. 26. The gap opens near the low of the day and the price rallies into the close, very near the prior day's close, in what looks like a very long-bodied candle with little or no wicks.

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I drew a blue oval on the chart. What this should be telling the trader, since there was no follow-through after that gap down, is the bears have lost control and we are seeing positions go from weak hands to strong hands. The market extended itself too far or overreached to the downside and this doubt should creep into the minds of the short traders, thus liquidating their positions before it is too late and fueling a reversal.

One other thing to note: The last four days' trading in SLV, we have had big time above-average volume. Prior to that we haven't seen a single day since Aug. 25 where volume in SLV was above its 50-day simple moving average.

I would like to see a close above yesterday's high which should have the bears feeling trapped down below.

In full disclosure I do not have a position in SLV, but I am long Silver futures.

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