Best of the Week
Most Popular
1.UK House Prices Momentum Crash Threatens Mini Bear Market 2017 - Nadeem_Walayat
2.Perfect Storm - This Fourth Turning has Over a Decade of Continuous Storms to Come - James_Quinn
3.UK House Prices Momentum Crash Warns of 2017 Bear Market - Video - Nadeem_Walayat
4.Billionaire Investors Backing A Marijuana Boom In 2017 - OilPrice_Com
5.Emerging Markets & Basic Materials Stocks Breaking Out Together - Rambus_Chartology
6.Global Currency Reserve At Risk - Jim_Willie_CB
7.Gold and Silver: Your Stomach Is Probably Wrenching Right Now - The_Gold_Report
8.Warning: The Fed Is Preparing to Crash the Financial System Again - Graham_Summers
9.Basic Materials and Commodities Analysis and Trend Forecasts - Rambus_Chartology
10.Discover Why A Major American Revolution Is Brewing - Harry_Dent
Last 7 days
4 Insights for Adjusting Your Portfolio in a Rate-hike Environment - 19th Aug 17
Gold Direction Indicator - 19th Aug 17
Historical Inevitability and Gold and Silver Ownership - 19th Aug 17
You Are Being Lied To About “Low” Gold Demand - 19th Aug 17
This is Why Cocoa's Crash Was a Perfect Setup - 19th Aug 17
Gold, Silver Consolidate On Last Weeks Gains, Palladium Surges 36% YTD To 16 Year High - 19th Aug 17
North Korea Is Far From Being Irrational… It Has A Plan - 18th Aug 17
US Civil War - FUNCTIONAL ILLITERATES TRYING TO ERASE HISTORY - 18th Aug 17
Bitcoin Hits New All-Time High Over $4,400 As It Catches Paypal In Total Market Cap - 17th Aug 17
3 Psychological Ingredients behind Great Web Content - 17th Aug 17
The War on Cash - Rogoff, Orwell and Kafka - 17th Aug 17
The Stock Market Guns of August, Trade Set-Up & Removing your Rose Tinted Glasses - 16th Aug 17
Stocks, Bonds, Interest Rates, and Serbia, Camp Kotok 2017 - 16th Aug 17
U.S. Stock Market: Sunrise ... Sunset - 16th Aug 17
The Next Tech Crash Could Delay Your Retirement by a Decade - 15th Aug 17
Gold and Silver Precious Metals Nearing Breakout - 15th Aug 17
North Korea Showdown: Pivotal Market Turning Point - 15th Aug 17
Tech Stocks DOT COM Bubble Do-Over? - 14th Aug 17
Deep State Conspiracy or Chaos - 14th Aug 17
From the Trans-Atlantic Axis and the Trans-Asian Axis - 14th Aug 17
Stock Market Intermediate Correction Underway - 14th Aug 17
The Islamic State Jihadi Pivot to Asia - 13th Aug 17
Potential Pivots Upcoming for Stocks and Gold - 13th Aug 17
North Korean Chinese Proxy vs US Military Empire Trending Towards Nuclear War! - 12th Aug 17
Gold Stocks Coiled Spring - 12th Aug 17
Neil Howe: The Amazon-Walmart Rivalry Will Determine the Future of Retail - 12th Aug 17
How to Alton Towers Half Price Discount Entry 2017 and 2018, Any Time, No Pre-Booking! - 12th Aug 17
Top 3 Technical Trading Tools Part 2: Relative Strength Index (RSI) - 11th Aug 17
What Makes Women Better Investors - 11th Aug 17
Crude Oil Price Precious Metals Link in August - 11th Aug 17
Influencer Marketing Predictions All Businesses Should Take Into Account - 11th Aug 17
Really Bad Ideas - Government Debt Isn’t Actually Debt - 10th Aug 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

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

© 2005-2017 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