Lets take a look at SLW that is an important stock within the precious metals universe. It had a big bounce up this morning based on some news that it was going to pay out a dividend. If one didn’t have a chart to look at one would have thought that this stock was breaking out by its early morning rise. But that was not the case as the daily chart below shows. All it did was trade back up to the top of its small trading range its been in for a month or so. This little red rectangle is forming just below the 10 point expanding flat top triangle which suggests the move will be to the downside once the small red pattern is complete.
The weekly chart shows a picture of weakness. Last summer this is one of the stocks we bought for the Model Portfolio as it had a beautiful 6 point bull flag. There were alot of other PM stocks that had these type of big looking consolidation patterns that showed there was a potential for a big rally. In hindsight now we can see all those big blue consolidation patterns, that I was showing you last summer, turned out to be topping patterns with a completely different outcome. When you see these type of patterns start to break down instead of up it rings a loud bell that something isn’t right and to pay close attention. As you can see on the chart below SLW did break out of the 6 point bull flag but failed to rally much. As long as it stayed above the top blue rail it still had a chance to rally. After many weeks of failing to make a new high, after the breakout, the price action continued to drift lower. The red circle shows the 2008 uptrend rail and the top blue rail of the 6 point bull flag. As you can see the price action has now broken below both important trendlines. Right now SLW in trying to backtest the blue rail form below after finding some support on the S&R rail. The first thing SLW needs to do to turn positive is to trade above the blue trendline. Right now it’s trapped between a rock and a hard spot.