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Tuesday, October 4, 2016

Gold and Silver charts: form bearish 'descending triangle' patterns

Gold chart pattern

For the past two months, the daily bar chart pattern of Gold received strong support from the 1310 level, but touched a series of lower tops - forming a 'descending triangle' pattern from which the likely breakout is downward.

A 'descending triangle' has measuring implications. The height of the triangle above the support level of 1310 (60 points) becomes the downward target below the support level, i.e. 1250. 

Gold's price may not fall that far. The rising 200 day EMA (at 1270) is likely to provide good support.

Since triangles are unreliable patterns - though descending (and ascending) triangles are usually exceptions - an upward breakout above the downward-sloping trend line can negate the triangle pattern.

All three daily technical indicators are in bearish zones and showing downward momentum. A breach of the 1310 level is on the cards.

Can the 1310 level provide support again? It can. But unlike trend lines, which get strengthened with each test, a support (or resistance) level gets weakened by each subsequent test.

On longer term weekly chart (not shown), gold’s price is seeking support from its 20 week EMA, but managed to close above its three weekly EMAs in long-term bull territory for the 17th week in a row. The 'golden cross' of the 50 week EMA above the 200 week EMA is still awaited. Weekly technical indicators are looking bearish and showing downward momentum.

Silver chart pattern

Note the following comment in the previous post on the daily bar chart pattern of Silver: "Silver's price may make an attempt to cross above its Sep 6 top of 20.25."

On Sep 22, silver's price broke out and closed above the downward-sloping trend line but fell short of the 20.25 level.

Bears struck immediately and dropped silver's price below its 20 day and 50 day EMAs. A brief rally to test resistance from the down trend line failed.

Though silver's price is trading above its rising 200 day EMA in bull territory, the formation of a 'descending triangle' pattern (flat bottom, lower tops) is likely to cause a drop towards 16.25.

Daily technical indicators are looking bearish. MACD has crossed below its signal line and re-entered negative zone. RSI is below its 50% level and moving down. Slow stochastic is about to enter its oversold zone. 

RSI and Slow stochastic have formed bearish 'double top' patterns in bullish zones - hinting at more correction. 

On longer term weekly chart (not shown), silver’s price closed below its 200 week EMA, but is seeking support from its 20 week EMA. Weekly technical indicators are looking bearish and showing downward momentum.

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