Recently I've noticed something interesting:
The top image is silver on a 60 minute chart. The bottom image is TLT (20 year treasuries) on a daily chart. The scales are very different but the pattern is remarkably similar (a chart for short bonds is even more similar). This is a rounded top. It usually works itself out by finishing where it started. After that however a rebound is likely. This is what I'm expecting for TLT in the intermediate term (6-12 months) and what I think is a reasonable possibility for silver in the short term (4-6 weeks). Whether we get a gap fill or not is a good question. A gap at the beginning of an extended uptrend often remains unfilled, so if silver or treasuries bounce before filling their gap then I'd take that as a very positive sign.
One can have more fun with rounded tops:
This is a chart for TLT (treasuries) flipped upside down. Here once again it looks pretty clear to the naked eye that the rounded top will finish itself off (going down, which is really going up since this is turned upside down). In this case, a completed rounded top would get TLT to the 106 - 109 range. There is a gap in fact right at the top (er, bottom) at 107.62. If the pacing remains the same then that range would be expected in the October time frame.
Treasuries concern me in the long run. I don't know how long the anticipated bear market will last but I think it will be only getting started in September and certainly not be over by October. If treasuries were to continue their inverse relationship with stocks for that length of time then they would end up back at levels during the financial crisis. Certainly this is possible but there is another possibility which is very ugly.
The other possibility is that rates begin to rise while the market is falling. That is the beginnings of stagflation and it is what began in 1977. Our economic environment is very different than 1977. Ours is significantly weaker, which while it bodes ill for jobs and the market, bodes well for rates. Rates ought to remain low. However I could see the possibility of an ill fated QE3 that backfires, causing rates to rise due to a market that is concerned about a debased currency.
This is crystal ball conjecture and there's no need to make such a call at this time but it's worth keeping in mind as a possibility. Treasuries are not an automatic long in a bear market.
It is also worth noting that in 1977 silver began a climb upwards at about this point as well. It was not the famous 1979 Hunt Brother's corner rally but rather the weak sentiment dead cat bounce that presaged the mania that would come about two years later. Such a dead cat bounce is exactly what our current lottery ticket contemplates.
The other possibility:
The other possibility is that we get a little uptick on treasuries to the 102 area and then it heads downhill. (I'd be careful not to call what we're see a "bear flag" since it's a pattern that has traced out over six months. While it looks like a bear flag from this distance I don't think there's any justification for that perspective.)
There is a big fat gap at 98 that is begging to be filled and that may give us a clue as regards timing. If the rounded top heads down before filling that gap (as I am expecting) then that adds weight to the first case scenario since treasuries would have a tremendous amount of momentum from the "spring action" of hitting bottom three times. The little white bars that jut out of the top of the rounded pattern allude to future upward action.
If however it reaches up and closes the 98 gap during this retracement then I would consider that a more negative sign for treasuries as it would break the rounded top and leave less "incentive" for treasuries to climb back off the floor.
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