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Tuesday, January 20, 2015

Gold and Silver charts: an update

Gold Chart Pattern

GOLD_Jan1615

There has been a significant change on the daily chart pattern of gold since the previous post. The 40 months long bear market that started after gold touched its lifetime high in Sep ‘11 appears to be over. Why?

Note that gold’s price formed a slightly complicated ‘inverse head-and-shoulders’ reversal pattern that took more than 4 months to complete. The left and right shoulders have been labelled as S1 and S2 respectively. The ‘head’ itself is a ‘double bottom’ reversal pattern. The 20 day EMA has formed a more easily discernible ‘inverse head-and-shoulders’ pattern.

The reversal pattern has formed over several months after a long bear period – giving it technical ‘strength’. The eventual break out above the falling neckline was followed by a strong volume break out above the falling 200 day EMA into bull territory. It can be concluded that the bear market is all but over technically.

All three daily technical indicators are inside their respective overbought zones. A pullback towards the 200 day EMA is a possibility. The pullback can be used to enter – in case one has missed buying on the break out.

Those who are more inclined to assess fundamental signals may say that removal of the cap on Swiss Franc’s exchange rate against the Euro provided the bullish trigger. Those who are more technically inclined will appreciate the formation of a large reversal pattern prior to the break out.

On longer term weekly chart (not shown), gold’s price has crossed above its 20 week and 50 week EMAs, but is trading below its falling 200 week EMA in a long-term bear market. Technical indicators are looking bullish, though MACD is still inside negative territory. Bears may put up a strong fight near 1340.

Silver Chart Pattern

SILVER_Jan1615

The daily bar chart pattern of silver has broken out above the falling neckline of an ‘Inverse head-and-shoulders’ reversal pattern. Good volume support has provided technical validity to the break out. Is the 46 months long bear market finally coming to an end?

Possibly, yes. However, the falling 200 day EMA needs to be crossed with strong volume support for the bear market to get reversed. So, bulls have their work cut out.

Daily technical indicators are bullish, but looking a bit overbought. MACD and RSI are on the verge of entering their respective overbought zones. Slow stochastic is already inside its overbought zone.

The zone between 18-19 is a long-term support-resistance zone. Bulls may regain control only if the 19 level is crossed convincingly.

On longer term weekly chart (not shown), silver’s price has crossed above its 20 week EMA, but is trading below its 50 week and 200 week EMAs in a long-term bear market. MACD is still in negative zone. RSI and Slow stochastic have crossed above their respective 50% levels.

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