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Tuesday, August 5, 2014

Gold and Silver charts: long-term bear markets continue

Gold Chart Pattern

$GOLD-Aug0414

For long-term investors, following the 3 years weekly bar chart pattern of gold probably makes more sense than the tension and confusion of daily price fluctuations. Short-term traders, who thrive on the adrenaline rush of hourly price gyrations, can skip this post.

A battle line (in blue) at 1525 has been drawn on the weekly chart of gold (above). Above the line is the ‘bull zone’, and below it is the ‘bear zone’. Note that 1525 had acted as a support level back in Sep ‘11, Dec ‘11 and May ‘12.

Gold’s price convincingly breached this support level in Apr ‘13, followed by a drop below its 200 week EMA in May ‘13. That should have convinced die-hard bulls to throw in the towel. But like a Nigerian boxer during the recently concluded Commonwealth Games, who kept fighting even though his coach threw in the towel three times into the ring, the bulls are refusing to give up.

Attempts at rallies have been thwarted twice – in Aug ‘13 and Mar ‘14 – by the falling 200 week EMA. The ‘death cross’ of the 50 week EMA below the 200 week EMA in Nov ‘13 was the final technical confirmation of a long-term bear market. But the writing was on the wall well before then.

Weekly technical indicators are turning bearish. MACD is touching its signal line barely in positive territory. RSI has slipped below its 50% level. Slow stochastic is falling rapidly towards its 50% level. So far, gold’s price hasn’t fallen below 1180 or so. That is where bulls are likely to take their last stand.

On shorter term daily chart (not shown), gold’s price is trading below its three EMAs. The 20 day EMA is about to cross below its 50 day EMA, which is short-term bearish. However, the price pattern formed since the intra-day high of 1345 on Jul 10 ‘14 is a ‘falling wedge’ from which an upward break out is likely. 

Silver Chart Pattern

$SILVER-Aug0414

The 3 years weekly bar chart pattern of silver has been in a long-term bear market since Apr ‘13, when silver’s price dropped below its 200 week EMA and the support level (in blue) at 26 – backed by very strong volumes.

The support level turned into a resistance level thereafter, though the 26 level has not been tested even once during the past 16 months. The ‘death cross’ of the 50 week EMA below the 200 week EMA in Jul ‘13 was the final technical confirmation of a long-term bear market. All attempts at rallies by bulls since then have faced strong resistance from the falling 50 week EMA.

Weekly technical indicators are looking a bit bearish. The upward momentum of MACD has stalled at the ‘0’ line. RSI has fallen below its 50% level. Slow stochastic has dropped sharply from its overbought zone, and is heading down.

It is not all bad news for bulls though. All three indicators touched higher tops in Jul ‘14 while silver touched a slightly lower top. The positive divergences may lead to another attempt at overcoming the resistance from the 50 week EMA.

On shorter term daily chart (not shown), silver’s price is trading below its three EMAs. But the since touching an intra-day high of 21.65 on Jul 10 ‘14, silver’s price has been forming a bullish ‘falling wedge’ pattern from which an upward break out is likely.

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