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Tuesday, July 8, 2014

Gold and Silver charts: bear market rallies coming to an end?

Gold Chart Pattern

Gold_Jul0714

The 6 months daily bar chart pattern of gold spiked up on huge volumes on Jun 19 ‘14 to rise above the 1280 level and its 50 day and 200 day EMAs into bull territory. Since then, gold’s price has traded above all its three EMAs for 11 straight sessions.

The long-term moving average has provided good support on the downside. Both the 20 day and 50 day EMAs formed bullish ‘rounding bottom’ patterns, and are rising towards the 200 day EMA. These are bullish signs.

However, the entire rally from the Jun 3 ‘14 low of 1240 is technically a bear market rally. Why? Gold’s price crossed above the 1330 level intra-day on Jul 1 & 2, but failed to close above it. Note that 1330 is the previous top touched in Apr ‘14.

The price band between 1330-1350 is a resistance zone, which needs to be crossed convincingly if bulls are to overcome the Mar ‘14 top of 1395, and regain control. The ‘golden cross’ of the 50 day EMA above the 200 day EMA will be a technical confirmation of a return to a bull market. Till then, bears will remain on top.

Daily technical indicators are in bullish zones, but correcting overbought conditions. MACD is above its signal line in overbought zone, but forming a bearish ‘rounding top’ pattern. RSI has slipped down from its overbought zone. Slow stochastic formed a small ‘double top’ reversal pattern and looks ready to drop from its overbought zone.

Trouble in Iraq and slow growth in the USA may have encouraged bulls to take long positions. But the rally appears to be coming to an end.

On longer term weekly chart (not shown), gold’s price moved above its 20 week EMA but is facing strong resistance from its 50 week EMA. Gold is trading more than 50 points below its falling 200 week EMA in a long-term bear market.

Silver Chart Pattern

Silver_Jul0714

The 6 months daily bar chart pattern of silver followed the yellow metal’s example and rose sharply to enter bull territory on Jun 19 ‘14, and has traded above its 200 day EMA since then. Strong volume support raised hopes of a trend reversal.

All three daily technical indicators are inside their respective overbought zones, but beginning to correct. The 200 day EMA has provided good support on the downside so far. If the support holds, then silver’s price may attempt to cross above the resistance zone between 21.25-21.75.

Unless that happens, bears will use every opportunity to sell, as they have been doing for the past two trading sessions.

On longer term weekly chart (not shown), silver’s price moved above its 20 week EMA but is facing strong resistance from its 50 week EMA. Silver is trading more than 3 points below its falling 200 week EMA in a long-term bear market.

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