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Tuesday, April 10, 2012

Gold and Silver chart patterns: bears taking a firm grip

Gold Chart Pattern

Gold_Apr1012

In the previous update three weeks back about gold’s chart pattern, readers were advised against using the drop to the 200 day EMA as a buying opportunity. The technical indicators were pointing to a deeper correction. Things have become a little more murky for the bulls. Two attempts by gold’s price to move up were thwarted by the falling 50 day EMA.

Since touching the Feb ‘12 peak of 1790, gold’s price has been forming a bearish pattern of lower tops and lower bottoms and is in danger of falling into a bear market. The 20 day EMA is falling below the 50 day EMA, and both EMAs are moving down towards the 200 day EMA. Note that strong buying in Jan ‘12 had prevented the 20 day EMA from crossing below the 200 day EMA. The ‘death cross’ of the 50 day EMA below the 200 day EMA was also avoided. Bulls may not be so lucky this time.

All three technical indicators are bearish. The RSI is below its 50% level. Its up moves over the past month have found strong resistance at the 50% level. The MACD is negative and below its signal line. The slow stochastic managed to cross above its 50% level twice in succession, only to drop down to the edge of its oversold zone.

Bulls may try to seek solace from the positive divergences in the three technical indicators, which touched higher bottoms while gold’s price dropped lower. But the upward bounce from the recent low of 1610 has been accompanied by falling volumes and has stalled at the 200 day EMA. A test of the Dec ‘11 low is very much on the cards. Book profits.

Silver Chart Pattern

Silver_Apr1012

Silver’s price chart pattern shows a consolidation within a rectangular band between 31 and 33. Consolidation patterns tend to be continuation patterns, which means the price should break down below 31 sooner than later. The 50 day EMA failed to cross above the 200 day EMA. All three EMAs are falling and silver’s price is trading below its three EMAs – sign of a bear market.

The bears appear to have regained control after the two months long rally from the Dec ‘11 low of 26. The fall from the Feb ‘12 peak of 38 has already retraced more than 50% of the rally.

The technical indicators are looking bearish. The RSI is below its 50% level. The MACD is negative and below its signal line. The slow stochastic is falling sharply towards its oversold zone. A test of the Dec ‘11 low looks likely. Sell.

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