The big rally of the bottom made Thursday continues. There are a couple technical flies in the ointment however. First, volume Friday was lower than Thursday on the big white candle. Ideally we would like to see volume higher on the follow through, but the reversal was particularly strong on the day before and painted a “hammer” candle that speaks to an emphatic reversal of mood. Monday will tell us if a move to 1917 is in the cards or whether we may facing be facing the 2nd issue, a potential head and shoulders pattern. The left shoulder is the swing high at 1817, the head at 1917, and the potential right shoulder forming presently. The bears would love to see a lower high form on the chart to go along with the lower low in place at 1705. This would accomplish a new down trend on the chart to go along with a head and shoulders pattern. The H & S pattern is a reversal pattern and yields a projection that can be determined by measuring the distance between the neckline and the head, and then projecting down from the neckline. The potential pattern is shown in green and projects to 1565.
So there is real interest in the managers of gold’s price to manage a technical breakdown. On the other hand, if they fail or decide not to show up, the bulls will be seriously emboldened to run hard for the all time high. I personally sold some long trades on the reversal Tuesday hoping to re-enter on a swing low. I never filled on the Thursday reversal and just missed the bus. So I am anxious to re-enter and if price approaches my sale point from Tuesday, I will reluctantly jump back into the long position. This kind of thinking illustrates why price could explode upward if this pattern does not materialize. Potential longs who missed the reversal on Thursday will crowd back in. News is going to drive this one in my opinion. If the stock market can get some fluff news of some sort that brings a bid then we stand a decent chance of revisiting the 1705 low and give guys like me another chance to enter a potentially profitable short term trade. We are definitely going higher this fall and will better the 2000 level IMO.
Here is PHYS for those have to own paper gold. This gold is allocated unlike the gold in GLD. This fund is suitable for investors and swing traders. Option players know what they’re doing and can utilize GLD for its option chain. The same situation applies here as above in the spot gold chart. A potential H & S target may be 12.75. This is what the bears want you to believe, I don’t see it. As with the gold chart, I see a potential swing high coming that is lower than the all time high and it will establish a new down trend. I however will not buy the projection and will look for a re-test of 14.42, where I see support holding. I hope to re-enter some long positions on that swing assuming we are going higher in September. And guess what, if I am wrong and the projection does materialize, I simply hold tight. The next bus will be along in short order to rescue patient gold longs who find themselves under water. This has been going on for 11 years now.
Silver is another animal and looks completely different. No potential H & S here, just a big area of consolidation between 38 and 42. Volume is a potential issue as with gold. I think silver could be basing for a decent move. I would love to enter a position in silver and was hoping for the 38 level on this last swing low and had bids waiting. As with gold, I missed the entry. I would love a 2nd chance. Unlike gold, I will not chase silver back into long positions near the high of 44. Way too much volatility in silver and I always buy at over-sold levels and never at over-bought levels.