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Tuesday, May 7, 2013

Gold and Silver charts: bounce after panic bottoms

Gold Chart Pattern

Gold_May0613

The 6 months daily bar chart pattern of gold clearly shows three distinct phases that characterise a descent into a bear market:

  1. an initial drop below the 200 day EMA (in Dec ‘12);
  2. a sideways consolidation that brought all three EMAs together, followed by a sharp drop below all three EMAs that led to the ‘death cross’ of the 50 day EMA below the 200 day EMA (in Feb ‘13);
  3. another sideways consolidation followed by a sharp fall below the support level of 1525, and then a high-volume ‘panic bottom’ formation (on Apr 15 ‘13)

The subsequent bounce is facing resistance from the 20 day EMA. Note that volumes on the previous three down-days (Apr 23, 26, May 1) were higher than up-day volumes, which is a bearish sign. Since a ‘panic bottom’ seldom holds, gold’s price chart is likely to resume its downward move soon.

Daily technical indicators are giving mixed signals, which is to be expected during a sideways consolidation. MACD is rising above its signal line, but both are in negative territory. RSI is moving sideways below its 50% level. Slow stochastic has entered its overbought zone.

If you are holding on with the hope that gold will regain its lost glory, you will be disappointed. If you were lucky/brave to buy during the ‘panic bottom’, stop being greedy and book your profits. If you think this is a good time to enter – forget it.

There will be strong upside resistance from the falling 50 day EMA and the 1525 level. Downward target is 1250.

Silver Chart Pattern

Silver_May0613

The 6 months daily bar chart pattern of silver is showing a similar three step descent into a bear market explained in the analysis of gold’s chart (above): a fall below the 200 day EMA followed by a desperate effort to return to bull territory; a confluence of all three EMAs that usually precede a sharp fall (downwards in this case) and the ‘death cross’ technically confirming a bear market.

Finally, a breakdown below a rectangular consolidation zone between 28 and 29.50, followed by a pullback to the 28 level, and then a sharp fall below the support level of 26 and a ‘panic bottom’ on high volumes.

The subsequent bounce has been a weak one that has failed to cross above the falling 20 day EMA. Daily technical indicators are giving mixed signals. MACD is rising above its signal line, but inside negative territory. RSI is moving sideways below its 50% level. Slow stochastic has risen above its 50% level.

‘Panic bottoms’ seldom hold. Downward slide of silver’s price is likely to resume. The 20 day EMA should continue to provide upside resistance. Next downward target is 20.

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