Tuesday, March 8, 2016

Gold and Silver charts: long-term bear markets coming to an end?

Gold chart pattern

The following comments were made in the previous post on the daily bar chart pattern of Gold: "All three daily technical indicators are looking extremely overbought, which can lead to a price pullback towards the 1180 - 1200 zone. Bulls may take the opportunity to buy again."

Note that gold's price dropped inside the zone between 1180 - 1200 as expected, successfully tested support from the previous top of Oct '15, and then entered a sideways consolidation within a 'symmetrical triangle' pattern, from which an upward breakout occurred on Mar 3 '16.

The next day, gold's price touched a 52 week high of 1280 with a huge volume spurt, only to pullback towards the top of the triangle before bouncing up. 

Earlier, gold's price had formed a 4 months long 'rounding bottom' reversal pattern - clearly visible on the 50 day EMA. The subsequent 'golden cross' of the 50 day EMA above the 200 day EMA (marked by blue oval) technically confirmed a return to a bull market after almost 4.5 years.

All three daily EMAs are rising, and gold's price is trading above them. Is it time for bears to throw in the towel and beat a quiet retreat? Probably not so quiet - because of several bearish technical signals. 

First, volumes during the upward breakout from the triangle should have been significantly higher to technically confirm the breakout - but wasn't. Second, gold's price and its 20 day EMA have risen too steeply above the 200 day EMA. Such steep climbs are often unsustainable.

Third, all three daily technical indicators, after correcting overbought conditions, failed to touch new highs with gold's price. The combined negative divergences can lead to a correction, or even an 'end run' below the 'symmetrical triangle'.

On longer term weekly chart (not shown), gold’s price has closed above its 200 week EMA for the first time in nearly 3 years. Weekly technical indicators are looking overbought, and hinting at a possible correction. Any dip may be used as a buying opportunity by bulls.

Silver chart pattern

The following comments were made in the previous post on the daily bar chart pattern of Silver"All three daily technical indicators are inside their overbought zones. A pullback towards - and a likely drop below - the 200 day EMA is on the cards."

Silver's price dropped below all three EMAs, but bounced up sharply into bull territory and appears to have formed a bullish 'cup and handle' pattern. The pattern is more clearly visible on the 20 day EMA. 

A convincing rally past the 16 level will technically confirm the 'cup and handle' pattern.

Daily technical indicators corrected overbought conditions and are in bullish zones. The 'golden cross' of the 50 day EMA above the 200 day EMA, which will technically confirm a return to a bull market, is awaited.

On longer term weekly chart (not shown), silver’s price closed above its 20 week and 50 week EMAs but well below its falling 200 week EMA, and remains in a long-term bear market. Weekly technical indicators are in bullish zones, but not showing much upward momentum.

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