Best of the Week
Most Popular
1.Bitcoin War Begins – Bitcoin Cash Rises 50% While Bitcoin Drops $1,000 In 24 Hours - Jeff_Berwick
2.Fragile Stock Market Bull in a China Shop -James_Quinn
3.Sheffield Leafy Suburbs Tree Felling's Triggering House Prices CRASH! - Nadeem_Walayat
4.Bank of England Hikes UK Interest Rates 100%, Reversing BREXIT PANIC Cut! - Nadeem_Walayat
5.Government Finances and Gold - Cautionary Tale told in Four Charts - Michael_J_Kosares
6.Gold Stocks Winter Rally - Zeal_LLC
7.The Stock Market- From Here to Infinity? - Plunger
8.Ethereum (ETH/USD) – bullish breakout of large symmetrical triangle looks to be getting closer - MarketsToday
9.Electronic Gold: The Deep State’s Corrupt Threat to Human Prosperity and Freedom - Stewart_Dougherty
10.Finally, The Fall Of The House Of Saud - Jim_Willie_CB
Last 7 days
How To Play The 2018 Cannabis Boom - 18th Dec 17
Should You Consider Investing/ Buying Gold or Bitcoin? - 18th Dec 17
Gold EFPs: Absolute Proof that the Paper Gold Price is a Fraud - 18th Dec 17
Gold – Technical Obfuscation, Fundamentals, Predictions - 18th Dec 17
Stock Market Final Thrust is Likely - 17th Dec 17
Never Mind Tea Leaves, Here’s a Strong Signal from the Economic Dashboard - 17th Dec 17
As Bitcoin Breaks All-Time Highs Near $18,000 Its Future Has Never Been So Uncertain - 17th Dec 17
Best Time / Month to Buy a Used Car From a UK Dealer - 16th Dec 17
Relief Rally in Gold Mining Stocks - 16th Dec 17
Amid Bad Fundamentals, Gold Sector Rally May Have Begun - 16th Dec 17
Gold Bullish on US Fed Interest Rate Hike - 16th Dec 17
The LORAX Explains What Happened to Sheffield's Street Trees 2017 - 16th Dec 17
Bitcoin Trading Alert: Bitcoin Pauses – Will Appreciation Follow? - 16th Dec 17
SanDisk Ultra 128gb 100mbs Micro SD Card for Smartphone's Speed Test - 15th Dec 17
Inflation is Spiking Globally… Bond Bubble Bursts in 3… 2… - 15th Dec 17
Sheffield's 'Real' LORAX Defending the Trees From the Labour City Council Patrol Units - 15th Dec 17
Stock Market Decline Signals are Near - 15th Dec 17
Santa Is Putting Christmas On The Blockchain And Saving Billions - 14th Dec 17
The Unprotected, the Protected, the Vulnerably Protected Classes—Which Are You? - 14th Dec 17
Gold’s Upside Target - 14th Dec 17
Year-end US Interest Rate Hike Again Proves To Be Launchpad For Gold Price - 14th Dec 17
2 Charts That Might Define the Fed’s Jerome Powell Era - 13th Dec 17
UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall - 13th Dec 17
Stock Market Elliott Wave Forecasts - Is the World coming to the end? - 13th Dec 17
A Method Traders Can Use to Confirm an Elliott Wave Count - 13th Dec 17
Best Time / Month of Year to BUY a USED Car is DECEMBER, UK Analysis - 13th Dec 17
A Former Wall Street Veteran: Good Traders Are Born, Not Trained - 12th Dec 17
Buy Gold, Silver Time After Speculators Reduce Longs and Banks Reduce Shorts to Continue? - 12th Dec 17
Masters of Economic and Political Illusion – in Taxes, Debt, Government, and Markets - 12th Dec 17
Approved Used Land Rover Main Dealer Real Customer Buying Guide - Hunters, Chester - 12th Dec 17
Gold Price 100% Bullish Signal - 12th Dec 17
Epic Stock Market & Fixed Income Bubble Will Not End Well - 12th Dec 17
Bitcoin can be stolen. Although Can’t be hacked - 11th Dec 17
Have Stocks Reached A Permanently Rigged Plateau? - 11th Dec 17
Trying To Beat The System Is A Fatally Flawed Investment Strategy - 11th Dec 17
Is This The Beginning Of The Next Silver Rush? - 11th Dec 17
The Dow Gold Ratio - 11th Dec 17

Market Oracle FREE Newsletter

Traders Workshop

Gold's Outperformance and Huge Reversal

Commodities / Gold and Silver 2017 Apr 11, 2017 - 06:58 PM GMT

By: P_Radomski_CFA

Commodities

Several things happened on Friday and the markets reacted to them, so it's not easy to interpret the final outcome. Was the reversal bearish or was the session bullish as gold didn't decline substantially even though the USD rallied? Was gold's reaction adequate, too small or too big?

Let's start the discussion with a reminder of one of the reasons for Friday's pre-market rally. In Friday's Gold Trading Alert, we wrote the following:


The likely direct reason behind today's overnight spike in the price of gold is a cruise missile strike at a Syrian airbase, most likely the one from which a deadly chemical weapons attack had been launched earlier this week. However, it's not likely that 59 Tomahawk missiles was enough to ignite a rally alone. The strike had damaged ties between Washington and Moscow, as Russian spokesman Dmitry Peskov described the U.S. action as "aggression against a sovereign nation" on a "made-up pretext".

We have already mentioned that news-based rallies are likely to be temporary - today let's focus on the temporary impact that the above was likely to have - it was likely to boost prices of assets that are viewed as safe havens - gold and... the U.S. dollar. Both are being viewed as safe bets and thus it's no wonder that we saw a temporary increase in prices of both assets. Consequently, the fact that gold didn't decline is not a reflection of gold's true strength vs. the US dollar and thus it shouldn't be viewed as a bullish sign.

The important thing is that whereas the USD rallied further during the session, gold and silver reversed and erased (or more than erased in the case of silver) the entire daily rally before the end of the session. So, even though the initial safe-haven reaction was quite natural, it was also the case that the news-based rally was temporary - it didn't even take one trading day for the move in precious metals to be reversed.

All in all, it appears that the reversals are the thing to keep in mind, while gold's supposed strength vs. the USD is not. Let's take a look at the gold chart (chart courtesy of http://stockcharts.com).

Gold's reversal was not only sizable, it was also accompanied by huge volume - this is a classic, reliable reversal pattern. Needless to say, the implications are bearish. Moreover, please note that the sell signal from the Stochastic indicator remains in place.

Not only is the reversal in gold significant by itself - it's also confirmed by analogous action in silver. In fact, silver declined even more than gold (having closed below $18, which is not visible on the above chart) and it's currently at $17.90. The implications are bearish.

Last week, we wrote the following about the above long-term silver chart:

There are a few things that decide whether a resistance line is strong or not. The more important the tops that it's based on, the more important the resistance line. The more tops create a given line, the more important the resistance is. Finally, for the line to be very important, the space between the tops that create it should be rather significant (for instance the red line based on 2 late-2012 tops didn't result in anything in the following months and years).

Moreover, the way a given resistance line is likely to work is based on what created a given line. Therefore, a resistance line based on intra-day tops is likely to stop intra-day moves, a line based on daily closes is likely to stop the moves in terms of daily closing prices (so that the closing price doesn't break the line even though intra-day moves might) and the line based on weekly closes is likely to stop the moves in terms of weekly closing prices (in analogy to daily closing prices).

After the rather lengthy introduction, let's move to the point. Silver just moved to the line that is very important (green dashed line based on one extremely important top, one very important top and one less important top) and it did so in terms that were in tune with what the line was based on - silver closed the week at the line that was based on weekly closing prices.

The implications are naturally bearish for the following weeks and months as the above means that even if silver moves a bit higher temporarily, it's unlikely to move higher substantially or for long. The above alone suggests that we are in the “pennies to the upside and dollars to the downside” territory without considering anything else (including the USD Index). The situation would be different if the silver had broken above this line and confirmed this breakout - but it didn't, so the implications of moving to it are clearly bearish.

So, a reversal is very likely to occur shortly, if it didn't occur on Friday.

Silver moved higher very temporarily, reversed before the end of the week and overall it declined last week. The mentioned long-term resistance line seems to have stopped the rally.

Summing up, Friday's pre-market upswing in the precious metals sector appears to have been just a temporary news-based move that was already invalidated. The resulting reversals are very bearish developments especially that they were seen in both: gold and silver. Naturally, the above could change in the coming days and we'll keep our subscribers informed, but that's what appears likely based on the data that we have right now.

Thank you.

In order to stay updated on our latest thoughts on the precious metals market (including thoughts not available publicly), we invite you to sign up for our free gold mailing list. You'll also get free 7-day access to our premium Gold & Silver Trading Alerts. Sign up today.

Sincerely,

Przemyslaw Radomski, CFA

Founder, Editor-in-chief

Tools for Effective Gold & Silver Investments - SunshineProfits.com
Tools für Effektives Gold- und Silber-Investment - SunshineProfits.DE

* * * * *

About Sunshine Profits

Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and best silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Przemyslaw Radomski Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife