Silver (XAGUSD) Price Forecast: Potentially Bearish Descending Triangle Forms

Silver has been consolidating for the past six weeks or so following a sharp advance from an early-April spike low. Previously the consolidation pattern took the form of a potential bull pennant, but it subsequently evolved into a potential bearish descending triangle pattern. The pattern has been forming around support represented by the 38.2% Fibonacci retracement (not shown).

Two purple lines outline the descending triangle formation, with a low of $31.65. However, since the consolidation pattern has morphed once already it could certainly do so again. Nevertheless, unless that happens there remains the potential for a drop through the bottom of the pattern that could trigger a bearish reversal in silver on a breakdown from a descending triangle.

Descending Triangle Forms

Given the size of the descending triangle, it looks like silver may consolidate for a while longer if the integrity of the triangle is retained. Typically, a breakout can be anticipated before three quarters of the pattern has been filled towards the apex. A decisive decline below $31.65 signals a potential breakdown from the descending triangle pattern. That would open the door for silver to head towards a 50% retracement level at $31.00 or the 61.8% Fibonacci retracement at $30.37. Upside resistance parameters include the top trendline of the pattern (purple) and the most recent lower swing high at $33.24.

Might a Different Pattern Evolve?

If a downside signal triggers, there are a couple additional scenarios to consider. Given the current structure of the pattern a decline below $31.65 could evolve the current pattern into a potential bullish falling wedge, or eventually a flag pattern where the falling consolidation phase forms a small parallel channel.

Bulls in Charge Before Consolidation Rest

On the upside, what is clearly present is the potential pole for either a bull flag or wedge formation, if either were to eventually form. A sharp $5.36 or 18.9% rally finished in only 11 weeks at the $33.68 high from April 23. Such aggressive buying could be seen again in the next rally following the current correction. But that will depend on the pattern that exists at that time. Regardless, such aggressive buying increases the chance that the recent $28.32 bottom may stay a bottom for a while and that buyers remain for silver and accumulation is occurring overall.

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