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Tuesday, June 26, 2012

Gold and Silver chart patterns: an update

Gold Chart Pattern

Gold_Jun2512

Two weeks back, positive divergences in RSI and slow stochastic on gold’s price chart had indicated a likely continuation of the rally, which had earlier stalled at the 200 day EMA. However, sliding volumes and weak technical indicators did not suggest a strong rally.

It was no surprise that the rally stalled at the 200 day EMA once again, and gold’s price dropped below all three EMAs. Note the higher volume spikes on down days (in red) – a sign of distribution. After a 10 years long bull market, a bout of bear domination is to be expected and will technically improve the ‘health’ of gold’s chart.

Technical indicators are bearish. RSI is below its 50% level. MACD has crossed below its signal line into negative territory. Slow stochastic formed a bearish double-top pattern inside its overbought zone, and plummeted to the edge of its oversold zone.

A test of its previous lows at 1525 – touched in Dec ‘11 and May ‘12 – is on the cards. Gold’s chart is forming a large ‘descending triangle’ pattern. A breach of 1525 can be extremely bearish.

Silver Chart Pattern

Silver_Jun2512

Following comments were made about silver’s chart pattern two weeks ago: “Positive divergences in all three technical indicators, which touched higher tops in Jun ‘12 as silver’s price touched a lower top, may help to extend the rally. But not for long.”

Silver’s price oscillated about its 20 day EMA for a few days before falling below all three EMAs on good volumes. Just when it seemed that the previous low of 26 – touched in Sep and Dec ‘11 – may get tested, silver’s price jumped up on a strong volume spike.

Has silver’s price bottomed out? May be not. Technical indictors are bearish. RSI bounced up from the edge of its oversold zone, but is below its50% level. MACD has crossed below its signal line in negative territory. Slow stochastic has entered its oversold zone.

However, all three technical indictors are showing positive divergence by touching higher bottoms as silver’s price touched a lower bottom. Another rally may be in the offing. Unless silver is be able to cross above the 30 level, bulls won’t have much hope.

Silver’s chart is forming a large ‘descending triangle’ pattern. A drop below 26 can be extremely bearish.

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