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Tuesday, October 16, 2012

Gold and Silver chart patterns: bulls trying to regain control?

Gold Chart Pattern

Gold_Oct1512

Ever since gold’s price formed a double-top at 1925 more than a year ago, the bears have tried to rule gold’s chart. But their best efforts failed to reverse the long-term bull market – despite gold’s price dropping almost 400 points from its peak.

What had looked like a large descending triangle pattern with bearish implications got negated. The 20 week EMA did not cross below the 50 week EMA. Gold’s price didn’t even come close to testing its rising 200 week EMA. Now all three weekly EMAs are rising and gold’s price is trading above them. The bulls seem to be back on top again.

Note that the 2 years weekly bar chart pattern of gold has been forming a bullish cup-and-handle pattern since Feb ‘12. The ‘handle’ of the cup is currently being formed. This can be a good entry point, since the upward target on a break out above 1800 will be 2080.

Weekly technical indicators are bullish, but upward momentum is weakening. MACD is positive and above its signal line, but moving sideways. RSI has dropped down from the edge of its overbought zone. Slow stochastic is getting ready to move down from its overbought zone.

If you enter now, maintain a stop-loss at 1660. Alternatively, wait for the correction forming the ‘handle’ to play out and the up move to resume before entering.

Silver Chart Pattern

Silver_Oct1512

The 2 years weekly bar chart pattern of silver has also formed a bullish cup-and-handle consolidation pattern – though the pattern is a bit asymmetric. A break out above 36 may take silver’s price to 46.

The 20 week EMA has crossed above the 50 week EMA, technically confirming a return to a long-term bull market. All three weekly technical indicators touched higher tops while silver’s price touched a lower top in Oct ‘12. The combined positive divergences should lead to a resumption of the up move soon.

You can enter now, with a stop-loss at 31. Alternatively, wait for the up move to resume after completion of the ‘handle’ correction.

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