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Goldís Outperformance and Huge Reversal


 -- Published: Tuesday, 11 April 2017 | Print  | Disqus 

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

 

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

 

The likely direct reason behind todayís 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 Ė today letís focus on the temporary impact that the above was likely to have Ė it was likely to boost prices of assets that are viewed as safe havens Ė gold andÖ the U.S. dollar. Both are being viewed as safe bets and thus itís no wonder that we saw a temporary increase in prices of both assets. Consequently, the fact that gold didnít decline is not a reflection of goldís true strength vs. the US dollar and thus it shouldnít 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 Ė it didnít 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 goldís supposed strength vs. the USD is not. Letís take a look at the gold chart (chart courtesy of http://stockcharts.com).

 

 http://goldseek.com/news/2017/4-11pr/1a.png

 

Goldís reversal was not only sizable, it was also accompanied by huge volume Ė 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.

 

 http://goldseek.com/news/2017/4-11pr/2a.png

 

Not only is the reversal in gold significant by itself Ė itís 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 itís currently at $17.90. The implications are bearish.

 

 http://goldseek.com/news/2017/4-11pr/3a.png

 

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 itís 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 didnít 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 doesnít 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, letís 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 Ė 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, itís unlikely to move higher substantially or for long. The above alone suggests that we are in the ďpennies to the upside and dollars to the downsideĒ 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 Ė but it didnít, so the implications of moving to it are clearly bearish.

 

So, a reversal is very likely to occur shortly, if it didnít 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, Fridayís 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.

 

Thank you.

 

Przemyslaw Radomski, CFA

Founder, Editor-in-chief, Gold & Silver Fund Manager

Sunshine Profits - Tools for Effective Gold & Silver Investments

 

 

* * * * *

 

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. 

 


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 -- Published: Tuesday, 11 April 2017 | E-Mail  | Print  | Source: GoldSeek.com

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