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Tuesday, July 24, 2012

Gold and Silver chart patterns: an update

Gold Chart Pattern

Gold_Jul2312

For the past two week’s, the daily bar chart pattern of gold has consolidated sideways with a slightly downward bias. Up moves faced resistance from the falling 50 day EMA. Down moves stayed above the 1540 level. All the three EMAs are moving downwards and gold’s price is trading below them – a clear indication of a bear market in progress.

For the past 2 months, red volume bars on down days have been noticeably taller than green volume bars on up days. Stronger volumes on down days is a sign of distribution. Is gold’s price in the process of bottoming out? One can never be certain, but the bearish technical indictors are suggesting otherwise.

MACD is entangled with its signal line, and moving sideways in negative territory. RSI is meandering sideways below its 50% level. Like RSI, slow stochastic has spent the last two weeks below its 50% level.

There will be a break out from the consolidation zone – which can be thought of as a large symmetrical triangle that has been forming since gold’s price hit its May ‘12 low. Since consolidation patterns tend to be continuation patterns, the likely break out is downwards. However, triangles are quite unreliable, so it may not be a good idea to go short just yet.

A convincing break below 1525 can be very bearish, and a shorting opportunity – for reasons mentioned in the previous post. Up moves are likely to face resistance from the falling 50 day and 200 day EMAs.

Silver Chart Pattern

Silver_Jul2312

The 6 months daily bar chart pattern of silver is in a bear market and hovering dangerously close to the critical support level of 26. Bulls are desperately defending the support level, as can be seen from the higher volumes on up days. But the 20 day EMA has effectively resisted all up moves, despite a couple of intra-day breaches.

The 50 day and 200 day EMA are sliding and the distance between them is increasing. Such a condition is often followed by a counter-trend rally. But the bulls haven’t been able to muster up enough follow-up buying to start a proper rally.

Technical indicators are bearish. MACD is creeping up above its signal line, but both lines are in negative zone. RSI and slow stochastic are both falling below their 50% levels. Bulls are on the verge of being overwhelmed by the bears.

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