Silver Wheaton appears to have formed a Head and Shoulders on its chart, after announcing their Q2 Results.

A Head and Shoulders formation usually indicates a change in trend and, when the head and shoulders are like the one on the chart above, this would mean a change from an uptrend to a downtrend.

If this formation had occurred over a longer time period, we would be seriously concerned for the long term health of the stock, but as this formation has taken place over the last dozen or so trading sessions, we see no reason to be too concerned for Silver Wheaton in the long term. The long term trend is still upwards and so we continue to remain shareholders in Silver Wheaton. However over the shorter term, this formation has signalled that the stock could be in for a slight drop as it begins to correct after the great run it has been on.

This drop has two possible support line that could halt the fall. The first of these is the 50 day moving average line which is currently at $12.47. The second is the $12.00 line which was a resistance during June when Silver Wheaton fought against it, forming an ascending triangle which it broke out of the go in this incredible recent run. This resistance could now act as support line.

Either way, we are looking at a possible fall significantly below $13.00 and it is on this fall that we intend to add to our holdings in Silver Wheaton after we took profits on its run up to $14.80. We always think its a good idea to take money off the table as a stock goes on a run up, even if it is just small amounts every now and then, as one is locking in profits.

We will keep our readers informed of any insights we have on Silver Wheaton’s trading over the next few trading sessions. Silver Wheaton trades as SLW on the NYSE and the TSX.