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Tuesday, May 3, 2016

Gold and Silver charts: bulls taking charge after long bear dominance

Gold chart pattern

After a sharp rally into bull territory from its Dec '15 low, the daily bar chart pattern of Gold had been consolidating sideways for the past two months within a 'symmetrical triangle' pattern.

Triangles tend to be unreliable patterns, so it is prudent to wait for a breakout before initiating any buy/sell action. On Fri. Apr 29, gold's price broke out upwards with a strong volume surge that technically validated the breakout.

So, is this a good time to buy for those who may have missed out on the earlier rally? Well, Yes and No. Yes, if you have a longer-term view. Gold has clearly extricated itself from a strong bear grip, and should move higher.

No, if you have a shorter-term view. Why? Couple of technical reasons. One: gold's price formed a 'reversal day' bar (higher high, lower close) on Mon. May 2. It also formed a bearish 'shooting star' candlestick pattern. Two: All three technical indicators are in bullish zones but showing negative divergences by touching lower tops.

A pullback towards the top of the 'symmetrical triangle' is quite likely. The dip will provide a lower entry point.

On longer term weekly chart (not shown), gold’s price finally closed above its 200 week EMA, after struggling to do so for the past three months. Weekly technical indicators are looking overbought. A pullback towards the 200 week EMA is likely.

Silver chart pattern

The daily bar chart pattern of Silver shows how bulls cocked a snook at all the naysayers. A strong volume surge propelled silver's price past the 17 level after 11 months.

A few days of sideways consolidation was followed by a dash past 18 on May 2 '16. However, silver's price formed a 'reversal day' bar (higher high, lower close) that can bring the sharp rally during Apr '16 to a halt.

All three EMAs are rising and silver's price is trading above them in a bull market. Note that the rally has been a bit too steep. Also, all three technical indicators are looking overbought, and hinting at a correction.

A dip towards the zone between 16-16.50 will be an adding opportunity.

On longer term weekly chart (not shown), silver’s price is trading above its 20 week and 50 week EMAs, but failed to test resistance from its falling 200 week EMA. Technically, it remains in a long-term bear market. Weekly technical indicators are in bullish zones, but showing signs of turning down. 

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