Archive for the ‘Silver’ Category
It has been a rocky ride for gold and silver owners but the charts are bullish and are pointing to further upside.
After breaking out to the upside of a massive one year consolidation pattern, Gold is now consolidating in an equilateral triangle pattern. This pattern breaks out in the direction of the trend 75% of the time so the odds favor an upside breakout. While anything is possible, the fundamentals would also indicate that gold prices should head higher.
1) Starting January 1, 2013 banks worldwide are going to count gold as an asset at it’s full value. Presently it is counted at 50% of value. I have read that the deadline may be extended but the recognition of gold as a currency is just around the corner.
2) Central banks have been net buyers of gold and China and Turkey are huge buyers of gold.
3) Gold is no longer fluctuating in anti-relationship to the US dollar. It appears to be attempting to find its value in relation to other currencies.
4) There are serious problems in the mideast involving Syria. There is a possibility chemical weapons may be used or just obtained by hostile parties. Such an event would probably push gold through the roof.
5) The price projection for gold if it breaks out to the upside is in the 1840-1860 area. A confirmed break below the uptrend line would be bearish and could cause a 100 point drop although support may be found at the 200 day ma of 1663. The odds favor an upside breakout however.
Just as gold is exhibiting a bullish pattern Silver is also exhibiting a bullish pattern in the form of a cup and a handle. A break through the neckline at 35 has a projected price target of 41.
Conclusion: Gold and Silver are volatile but it looks like owning them will pay off sometime in the near future.
Last week was a roller coaster ride for gold and miners as they both got off to a strong start but then pulled back and finally ended the week on a high note. We now have specific chart patterns and price targets that can be traded for the anticipated rally.
Gold is now trading in a wide uptrend channel and the second point in the bottom trend line has been defined. The 200 day EMA was re-tested and held. I would expect gold to move to the top of the upper channel as it did between January and February. This would give gold a technical target of 1825-1850. The technical target of the inverse head and shoulders pattern outlined in my entry of March 24 is 2,100 so there is a chance gold could break out to new highs in this run.
Gold miners as evidenced by GDX recovered from what looked like a break down below critical support levels. GDX is now trading within a wide sideways trend channel. The target on GDX is 58 or the top of the utrend channel.
Bearish sentiment on gold and miners is now unwinding and should provide fuel for this rally. The fact that oil has broken down from a flag formation is another positive sign as lower oil prices are positive for miners.
Oil has sold off because the U.S. and Europe have stated that they may tap into their strategic oil reserves in an attempt to keep oil prices down. This is a band aid approach that may help in the short term but in the long run it will not have a major effect on the price of oil. Oil is going up in the longer term but it may take a quick drop to it’s 200 day EMA at 98. Then again this could be a false break down and when the news wears off oil will be back in the 105-110 trading range.
I mentioned in my entry of March 24 that TLT bonds were having a counter trend rally and would hit resistance at the 115-116 area. Well TLT didn’t make it that far as it got hammered at 114. Friday’s action formed a bearish outside candlestick that encompassed the prior 3.5 days worth of gains. TLT may find some short term support at it’s 200 day EMA of 111.01 and the March 19th low of just under 110. but this looks like a broken trade. There is longer term uptrend support at about 95 and that is where TLT looks like it is headed.
My guess is that the 30 year bull market in treasury bonds is officially over. One way to play rising interest rates would be to buy TBT. While there can be pricing problems with double inverse ETF’s this particular one has formed a rounding bottom and with interest rates coming off almost 0 it looks like the only direction this ETF can go from here is up.
The dollar has not been exhibiting any great strength lately as many analysts had been anticipating. The Euro has in fact been slowly rising as the perception is that Europe has at least temporarily solved it’s debt crisis while the U.S. has a potentially larger one looming in the future. There are countries like Russia, China, India and Brazil that are actively working to undermine the dollar as the universl currency of exchange.
If a sovereign debt crisis were to hit the U.S. it seems unlikely that the dollar and treasuries would be the main beneficiaries of it as the entire fiscal system of the U.S would be under fire. I would anticipate that gold, silver and other hard commodities would be the primary asset classes that capital would flow into.
Conclusion: It looks like the rally in gold, silver and miners is underway. In any event some gold and silver should be a long term holding in any portfolio.
Gold miners as evidenced by GDX double topped at 58. at the end of February and now appears to have bottomed at a major support level. Negative momentum is waning and while we do not have a completed MACD crossover, the MACD is turning up at a higher level than at the end of December when the index made a higher low. I have found this short term MACD divergence to be extremely reliable in calling turning points in the markets.
There was a breakdown of the rising head and shoulders pattern on GDX and the downside target of approximately 48 has been fulfilled. The minimum upside target of this run should be to the 200 day EMA at the 55-56 area. What happens past that point will depend upon the price action of oil and gold.
One way to play the rally in miners would be to buy Yamana Gold (AUY) either the stock or options. AUY has pulled back to the bottom of it’s well defined uptrend channel. The next move up should take it to the top of the channel at about 18.50.
Rising gold prices are good for miners but rising oil prices are not as they eat into the cost of production. Of course if the price of gold increases faster then the price of oil or the price of oil drops the 2 factors can negate themselves. Right now it appears that the price of both oil and gold are on the rise.
As I mentioned in my entry of February 22 GLD had broken through the neckline of an inverse head and shoulders pattern. That quickly reversed as JP Morgan apparently dumped a huge amount of gold on the open market. Any attempt at manipulation of the precious metals markets is doomed to failure as the laws of supply and demand will eventually win out. Central banks around the world are loading up on gold and China is an especially heavy buyer. China will be opening up it’s own gold exchange in June and the government is encouraging it’s citizens to load up on gold.
As a result of JPM’s actions there is an even larger inverse head and shoulders pattern forming on GLD. We have a left shoulder and head and the right shoulder is now forming off the 50 day EMA support line. If the pattern were to complete a successful break out of the neckline would bring gold to $2,100 per oz. With China opening up a gold exchange combined with the fact that Hong Kong will be opening up a silver exchange it seems highly likely that both gold and siver will be hitting new all time highs this year.
WTIC Oil has also formed an inverse head and shoulders pattern as evidenced by the monthly chart. The neckline has already been broken and the projected price target is 125.
Oil has been flagging since February as evidenced by the daily charts. Once oil breaks through the top of the flag formation it should make a quick run to 125.
As I also mentioned in my entry of February 22 bonds were in the process of breaking down but were taking quite some time to do so. Bonds as evidenced by TLT finally broke through critical support this past week and are now staging a counter trend relief rally. I expect TLT to hit stiff resistance at the downtrend of 116 or it’s 50 day EMA at 115.42. From that point on TLT should head lower and the stock market should continue to rally.
Conclusion: The Technical indicators are pointing to higher stock, oil and precious metals prices while bond prices are headed lower.
GLD has just broken through the neckline of an inverse head and shoulders pattern that has been forming since November. The breakout above the neckline at $170. occurred on increasing volume and with a strong bullish candlestick. If the $170. level holds as support then the projected price target for GLD is $192. which equates to about $2000. per ounce of the metal. The move in GLD will undoubtedly carry SLV along with it. This looks like a good time to back up the truck and load up on gold and silver.
As far as the broader market is concerned the charts are indicating that we are in a powerful bull market.
The QQQ has been leading the market higher. Towards the end of 2010 the QQQ broke through the neckline of an inverse head and shoulders pattern with the neckline at $50. and a price target of $75. For all of 2011 the index swung between $50. and $60. In 2012 the index broke through the $60. level indicating that the market is poised to move higher.
The S&P 500 broke through it’s bear market downtrend from the 2007 market top and it is now trading in the upper half of it’s uptrend channel. A breakthrough of the midline generally leads to a run to the top of the channel. In the current time frame the upper trend line crosses at about 1500.
20 year treasury bonds as evidenced by TLT are in the process of breaking down. The breakdown has been taking awhile due to the lingering effects of the Eurozone crisis but it is now almost complete. TLT has formed a head and shoulders pattern with 4 right shoulders that are descending. The RSI is below 50 and the MACD has been steadily dropping and is below 0. Critical support is at $115.
The index is currently just below it’s 10 day EMA where it will in all likelihood find strong resistance. A drop below $115. should quickly bring TLT to it’s 200 day EMA at $110. This drop should coincide with another leg up in the stock market as the S&P is testing overhead resistance at about 1370. Since interest rates move inversely to the underlying security, it makes sense that interest rates should rise along with the improving economy.
Conclusion: We are in a powerful bull market phase for both stocks and precious metals. There’s an excellent chance both the stock market and precious metals will hit new all time highs in this bull run.
The U.S. stock market is ready to move considerably higher. The S&P 500 has closed above the neckline of an inverse head and shoulders pattern with a projected move to the 1360-1370 area. The S&P is exhibiting bullish characteristics as the RSI and MACD are both rising and above the 50 level. Neither one is in overbought territory.
The S&P has also broken to the upside of an equilateral triangle where it has re-tested the breakout and is now flagging.
The dollar has broken through to the upside of a rising wedge. This is a bit unusual as a rising wedge is normally a bearish pattern. Based upon other technical parameters I believe this is a false breakout as the dollar has formed a bearish MACD divergence with the MACD hitting a lower high while the index itself hit a higher high. The dollar looks like it is on the verge of a correction.
Silver has formed a bullish MACD divergence as it has hit a lower price while the MACD has made a higher low. The downtrend in the RSI has been broken and there are 2 unfilled gaps, one between 29 and 30 and the other between 36 and 38.
Silver is flagging just below the downtrend from the September high. A breakthrough of this downtrend should bring us to the next downtrend which roughly corresponds to the top of the second gap at 38.
Gold has also formed a bullish MACD divergence although not as pronounced as that of silver and the downtrend in the RSI has also been broken.
Gold has an unfilled gap between 163 and 166 which corresponds to the downtrend from the September top.
Conclusion: It looks like another phase of the bull cycle has started and a rally that should last at least a few months is underway. With European and emerging markets acting skittish and U.S. economic numbers improving the U.S. stock market is starting to look like a pretty good place to invest.
Low risk long trades in the S&P, gold and silver could be placed here. A stop on the S&P should be placed just below the neckline at 1265. If the S&P fails to move higher and instead breaks below 1265 short positions should be established as a reversal off this pattern would be extremely bearish. The overall technical picture however points to higher prices.
Gold has dropped below it’s 200 day moving average on the daily charts. Because of this various pundits are announcing that gold is now in a bear market.
So far the uptrend from 2009 is still intact so it appears that gold is still in a bull market. I would think that buyers will be coming in when the price meets the uptrend line which is about $150.
GLD has broken down from a rising head and shoulders pattern. The projected downside for this pattern is $147. but I suspect the carnage will end at $150. There is also a huge gap that needs to be filled between $163. and $165.
Whereas European banks may be dumping gold to raise dollars, Russia, China and India are interested in raising their stake in gold. Therefore any selling should be tempered by buying from these countries.
Silver has also broken down from a rising head and shoulders pattern. The projected downside for this pattern is $26. but it looks like a double bottom may be in at current levels. While volume on this leg down is rising, it is considerably less than the volume that occurred on the first leg down on Sept. 26 implying that the double bottom should hold as support.
Of course any good news out of Europe and the risk on trade will be back in vogue. So far however it does not appear that the Europeans are making any concrete progress in solving their sovereign debt crisis.
Conclusion: The bull market in gold is not over and even if it corrects further will probably not be over for some time. If the Eurozone truly wants to keep the Euro alive as a currency then it is going to have to print more Euros and sell Eurobonds. While the dollar may be getting a temporary pop due to Euro liquidation, it is still in a long term bear market and U.S. economic policies will eventually send it heading lower. This should ultimately be good for both gold and silver.
Today’s action in the stock market confirms my opinion that the current rally has legs. The debt of Italy and Spain were downgraded by Fitch and the market basically yawned. Had this happened prior to last week there would have been a massive sell off.
As I mentioned in my post of October 1, TLT appeared to be hitting a multi-year double top and that this would indicate a move out of bonds and into stocks. The technical parameters for TLT are deteriorating as momentum has been decreasing as TLT moved higher. Momentum has now turned negative while the macd and stochastics have given a sell signal. TLT is sticking it’s nose below the bottom of it’s uptrend channel and in all likelihood will break down below it.
The dollar rally as exemplified by UUP hit a brick wall at 22.60, right around the level I mentioned in my entry of September 27 where it would hit downtrend resistance. The uptrend in UUP since the September low is still intact but appears to be heading towards a breakdown, the macd and stochastics have given a sell signal and momentum has been decreasing as UUP has been rising.
Silver appears to have bottomed and looks like it has reversed off a triangle. It has back tested the break out twice, negative momentum is waning, the macd appears to be heading up but hasn’t yet given a buy signal and the stochastics are slowly moving up. There are also 2 gaps to be filled as outlined on the chart. Silver and commodities should rally with the rest of the market especially if the dollar continues to break down. Great Britain announced their own version of QE and the ECB will undoubtedly announce something similar. This bodes well for precious metals. The initial upside target of SLV is 38.
Gold looks like it is in a similar pattern to silver but it hasn’t quite fully broken out yet. Since the top in silver preceded that of gold, I expect silver to lead gold higher. GLD also has 2 gaps to be filled with an initial upside target of 172.50.
Conclusion: The tone of the market has changed where good news is good news and bad news is already factored in. There are indications that Europe is now taking it’s sovereign debt problem seriously and will come up with some sort of interim solution. Barring a complete breakdown of European cooperation in resolving their debt crisis, a rally through the end of the year could bring the S&P to the 1257 area. This is the neckline of the head and shoulders top and a 61.8% fibonacci retracement from the October low of 1075 to the April high of 1370.
If this outcome were to occur it would be similar to that which happened in 2008 and so far the charts look almost identical. After an initial breakdown through the 2007 head and shoulders pattern, the market then rallied back up slightly past the neckline only to tumble much further.
The recent massive sell off in both gold and silver formed a recognizeable chart pattern on both assets.
After double topping, GLD has now formed a large bull flag correction pattern. GLD also pulled back right to it’s uptrend line from the February, 2011 low. This would seem to indicate that the cycle low for gold has been reached and it will now consolidate within the bull flag pattern. A drop to the rising support line should be viewed as a buying opportunity but it couldn’t hurt to accumulate GLD within this range if you don’t already own any.
SLV is exhibiting a similar chart pattern although it hit a lower secondary top and has been correcting for a longer period of time. SLV did not quite make it to it’s uptrend line from the 2008 bottom. SLV could possibly work it’s way down lower within the bull flag to meet the rising uptrend line but I suspect the cycle low for SLV has been made. Since SLV has been correcting longer, it will in all likelihood break out to the upside before gold does and will lead the charge in the next leg up for precious metals.
Right now the markets are in turmoil and the economic futures of Europe, the U.S. and China are unclear. It appears that the central banks of the world will have no choice but to flood the markets with liquidity. The Fed has stated that further intervention may be necessary in the near future and that can only mean one thing: increase the money supply. The ECB is also about to drop interest rates and will have to perform monetary easing in order to bail out the Euro Zone.
The Dollar has exhibited some strength lately but it has not by any means bolted out the door. While the downtrend from the January top has been broken and UUP is trading above it’s 200 day ma, it may be forming a small head and shoulders pattern. There is also immediate downtrend resistance at about 22.75. In any event the recent sell off in commodities would indicate that a stronger dollar in the short term has already been priced in. The dollar is in a long term bear market and even if it rallies in the short term it is ultimately headed lower. The U.S. cannot afford a strong dollar at this point so Ben Bernanke will be forced to do whatever is necessary to keep it weak.
Conclusion: The fundamentals for owning precious metals seems stronger than ever. Central banks will have no choice but to keep interest rates low and print money. The current correction in gold and silver should be viewed as a buying opportunity. Precious metals appear to be one asset class that can be bought and held for the longer term.
In regards to the broader stock market, there are a lot of negative technical readings on the charts but the floor at S&P 1100 may be the low for this cycle. There are still a ton of bears out there and everyone is expecting the market to fall apart. It is unclear if the current correction is like the one we saw in 2010 or if we are heading into a 2008 scenario.
September is typically the worst month for stocks and it is just about over. If we can make it through the end of the month without experiencing a complete breakdown there could be an upside market surprise heading into the fall. Some indications of this would be Europe getting it’s act together, the U.S. leading indicators not pointing to a recession, further Fed action, and China not coming apart at the seams.
A few weeks ago the U.S. Dollar appeared to have bottomed and the talking heads were claiming that it was the beginning of a new bull market for the dollar. At the same time the Euro looked like it was heading into the trash can because of recurring European debt problems. Now however both fundamentally and technically it looks like the currencies have reversed course.
First the dollar broke down through long term support at 22. It then rallied back up to it’s 20 day EMA and hit massive resistance there as evidenced by the large red bar that looks like an outside bearish reversal candle stick. UUP couldn’t even make it to the downtrend line drawn on the chart. While UUP is trading in a massive descending wedge which normally breaks out to the upside, the wedge is wide and the dollar can sink a lot lower within the pattern. The MACD is also below 0 indicating a severe downtrend.
The Euro however is in a wide slightly wedge shaped uptrend channel. It stuck it’s neck below it’s 20 day EMA but then reversed course and is now trading above it. The MACD is well above 0 indicating a strong uptrend.
What is causing this reversal of fortune is a combination of fundamental factors:
1) China is dumping U.S. treasuries and is buying European debt.
2) U.S. economic data looks weak in the short term.
3) U.S. government debt problems are starting to come to the forefront of economic news.
Even if the dollar manages to head back up, there is now massive resistance at 22.
Conclusion: Commodities such as gold, silver and oil appear to have bottomed and are heading higher. As the dollar sinks further the commodity bull run should continue. Goldman Sachs now says that oil is headed higher and everytime Goldman speaks the market moves in the direction they predict. I see no reason why this time around should be different.
Oil prices are rising, trouble’s brewing in the middle east, gold and silver are rising, emerging markets are slowing down, interest rates are headed higher. What is one to make of it all? The only way to find out is to look at the price charts and listen to what they are saying.
The Nasdaq and technology has been leading the way for this entire rally. If we take a look at the Q’s we can see that yesterday they broke out of a triangle consolidation pattern. Today the break out line was back tested and the test passed as the Q’s closed above it. Interestingly enough, this pattern usually breaks out in the direction that led into it which is down. The fact that it broke out to the upside indicates this is a powerful bullish move.
The SPY and DIA are in similar patterns but have not yet broken out. Considering that unemployment took a significant drop and the U.S. economic situation is starting to improve at a faster pace, barring a major catastrophe over the weekend the U.S stock market should start rallying again on Monday with tech leading the way.
The projected move of the Q’s based on this break out is to about 61 or a 5% move. A similar move on the S&P will take it to about 1390. If we look at a 5 year chart of the S&P we can see that there is almost no resistance between S&P 1300 and 1400.
It appears that oil may have a floor price of $100. a barrel. Even without middle east problems oil is ultimately headed higher due to supply and demand concerns from China and India. The current price level of oil does not look like it will have a significant impact on U.S. economic growth.
In any event higher oil prices should finally stimulate the growth of industries geared towards removing our dependence on oil. The U.S. will also probably have to relax it’s regulations against drilling in certain areas in order to help keep oil prices down for U.S. consumers and reduce our dependence on foreign oil sources.