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Tuesday, February 3, 2015

Gold and Silver charts: pullback after upward break outs

Gold Chart Pattern

GOLD_Feb0215

In the previous post on the daily chart pattern of gold, a break out above the neckline of an inverse head-and-shoulders reversal pattern was followed by a high-volume break out above the 200 day EMA. That had led to the conclusion that the 40 months long bear market was over.

As often happens following a break out above a resistance level, a pullback occurs towards the resistance level. The possibility was mentioned in the previous post. In this case, after touching a high of 1310, gold’s price pulled back to the 200 day EMA – where it received support and bounced up a bit.

Such pullbacks provide buying opportunities to those who missed buying during the earlier upward break out from the inverse head-and-shoulders pattern.

Note that the 20 day EMA has crossed above the 200 day EMA – like it did back in Mar ‘14. But the 50 day EMA is still below the 200 day EMA. The ‘golden cross’ of the 50 day EMA above the 200 day EMA will technically confirm a return to a bull market.

Daily technical indicators have corrected overbought conditions, but remain in bullish zones. MACD has dropped from its overbought zone, and crossed below its signal line. RSI has bounced up a little near its 50% level. Slow stochastic is falling towards its 50% level.

Some more correction or consolidation is possible before gold’s price starts to move up again. Expect resistance from the zone between 1320 and 1340.

On longer term weekly chart (not shown), gold’s price pulled back to the 50 week EMA after crossing above its 20 week and 50 week EMAs. It is trading below its falling 200 week EMA in a long-term bear market. Technical indicators are in bullish zones, but their upward momentum is stalling.

Silver Chart Pattern

SILVER_Feb0215

The daily bar chart pattern of silver had broken out above the neckline of an inverse head-and-shoulders reversal pattern on good volume support that provided technical validity to the break out. However, there wasn’t much volume support when silver’s price attempted to cross its falling 200 day EMA.

A high-volume pullback towards the neckline put paid to bullish hopes. Note that silver’s price touched a high of 18.50 – which was in the middle of the long-term support-resistance zone between 18 and 19 (mentioned in the previous post).

A convincing move (i.e. with strong volume support) above the 200 day EMA and the 19 level is required for bulls to regain control.

Daily technical indicators have corrected overbought conditions, and are beginning to turn bearish. MACD has crossed below its signal line in positive territory. RSI is trying to hold on to its 50% level. Slow stochastic has dropped sharply below its 50% level.

Silver’s price may consolidate near the neckline of the inverse head-and-shoulders pattern before making another attempt to enter bull territory.

On longer term weekly chart (not shown), silver’s price crossed above its 20 week EMA only to face strong resistance from its 50 week EMA. It has dropped down to seek support from its 20 week EMA, and is trading in a long-term bear market.

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