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Tuesday, January 8, 2013

Gold and Silver charts: cup-and-handle patterns fail

Gold Chart Pattern

Gold_Jan0813

One of the challenges in technical analysis is that patterns don’t always play out as expected. The weekly bar chart pattern of gold is a clear example of that. The bullish cup-and-handle pattern - whose ‘handle’ part was in the process of forming – failed to break out upwards above the ‘rim’ of the cup at 1800.

In the previous post four weeks back, investors were advised to hold with a stop-loss at the level of the 20 week EMA. Bearish weekly technical indicators led to the warning that a price drop below 1660 would negate the cup-and-handle pattern.

Note that gold’s price fell sharply below both the 20 week and the 50 week EMAs – thus triggering the stop-loss. However, on a weekly closing basis, gold’s price has managed to cling on to the 1660 level for the past three weeks.

Is there a chance that gold’s price will recover from here and make a renewed attempt at crossing the resistance level of 1800? Weekly technical indicators are not providing any such hopes. MACD is falling below its signal line and entered negative territory. RSI is trading sideways below its 50% level. Slow stochastic is inside its oversold zone.

What had looked like the ‘handle’ of the cup has turned into a downward move within a channel. Lower price levels are likely. However, gold is trading well above its rising 200 week EMA (not visible in chart), which means the long-term bull market is still intact.

Silver Chart Pattern

Silver_Jan0813

In the previous post on silver’s 1 year weekly bar chart pattern, the following comments were made: “The ‘handle’ portion is being formed. A move above 36 will be quite bullish. A drop below 31 will negate the cup-and-handle pattern.”

Three weeks back, silver’s price dropped below its 20 week and 50 week EMAs as well as the 31 level – negating the bullish cup-and-handle pattern that had taken more than 9 months to form. What had looked like the ‘handle’ of the cup has turned into a bearish pattern of lower tops and lower bottoms.

The 20 week EMA is resting on the 50 week EMA, and is likely to cross below soon. MACD has entered negative territory below its signal line. RSI is treading water below its 50% level. Slow stochastic is inside its oversold zone. Any price rise will probably be used by bears to sell.

Note that the 200 week EMA is still rising and silver’s price is trading above it. The long-term bull market is in force.

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