Gold and Silver chart patterns: an update

Gold Chart Pattern

Two weeks ago, gold's price had begun a correction after testing the Dec '11 top of 1770. So far, the 20 day EMA has provided good support to the price. The corrective pattern is looking like the 'handle' of a bullish 'cup and handle' pattern. That means a likely upward target above the 1900 level and a test of the all-time high touched in Sep '11.


The technical indicators are reflecting the effects of the correction. The RSI is sliding, but is above its 50% level. The MACD is positive, but has slipped below its signal line. The slow stochastic is looking bearish by falling below its 50% level, but is trying to turn around. Gold's price is trading above all three EMAs - the sign of a bull market.


Add, with a stop-loss at 1650. Conservative investors can wait for a convincing move above 1770 to enter.


Silver Chart Pattern

Silver's chart pattern shows that despite spending three weeks above the 200 day EMA - which should have been a bullish sign - the 20 day EMA has failed to cross above the 200 day EMA. The formation of a bearish 'rounding top' pattern is another concern for the bulls.


The technical indicators are beginning to look bearish. The RSI is steadily falling towards its 50% level. The MACD is barely positive, and has crossed below its signal line. The slow stochastic is below its 50% level, and still falling. Looks like silver's price is in danger of sliding back into a bear market.


Enter only on a convincing break above 36.

Gold and Silver Chart Patterns: an update

Gold Chart Pattern

Two weeks back, gold’s price was making a second attempt at a pullback towards its 200 day SMA from below. It was expected that the bears would resort to selling and push the price down once more. But after a bit of a struggle, the price crossed above the still-rising 200 day SMA and has stayed above it since then.

Technically, the support at 1550 was not broken – gold’s price only had a day’s close below the support level. So, the drop from 1900 to 1550 should be treated as a bull market correction. The 30 day and 60 day SMAs (not shown in chart) did not fall below the 200 day SMA. Once the 14 day SMA crosses above the long-term moving average, the bulls will regain control.

Gold’s chart appears to be forming a bullish ‘falling wedge’ pattern, which is a ‘continuation’ pattern from which the likely break out should be upwards. Please remember that technical analysis is not a science, and patterns don’t always play out as expected. Buy on a convincing rise above 1700.

Silver Chart Pattern

Despite a smart pullback above the 14 day SMA, silver’s price is trading below its 30 day and 60 day SMAs (not shown in chart) and well below the 200 day SMA – the hallmark of a bear market.

The white metal is falling within a downward-sloping channel, making a bearish pattern of lower tops and lower bottoms. The 200 day SMA is forming a ‘rounding top’ pattern, hinting at a further fall in silver’s price.

Stock Chart Pattern - Container Corporation of India (an update)

My previous post about the stock chart pattern of Container Corporation is almost two years old. The stock was consolidating within a symmetrical triangle after a strong rally that touched a peak of 1149 in July ‘09.

I had expected a correction down to the 50 day EMA or 200 day EMA because the stock was trading well above the 50 day EMA, and the gap between the 50 day EMA and 200 day EMA had become large (which precedes a correction or reversal). The technical indicators were also looking weak.

A trend reversal was ruled out because a symmetrical triangle is usually a continuation pattern. The logical break out was upwards, and a test of the all-time high of 1222 (reached in June ‘07) was on the cards before the correction. Let us take a look at the two years closing chart pattern of Container Corporation and observe what transpired over the past two years:

Several interesting patterns have formed on the chart, and I will take them up one by one. The expected upward break out from the triangle pattern took the stock’s price to 1235 on Aug 24 ‘09, just above the all-time high of 1222, before a correction ensued – or rather a consolidation within a flag (which is also a continuation pattern).

Note that the first down leg of consolidation within the flag was supported by the 50 day EMA in Sep ‘09. The upward bounce found resistance at 1222 in Oct ‘09. The next down leg pierced the 50 day EMA but stopped well short of the 200 day EMA.

The upward break out from the flag was not accompanied by a volume surge. No wonder the stock price consolidated sideways between 1222 – 1235 during the better part of Dec ‘09 before a high volume surge propelled the stock to a new high of 1321 in Jan ‘10.

The subsequent correction dropped below 1222, but found support twice on the line projected from the upper boundary of the flag pattern. Another volume surge in Mar ‘10 pushed the stock to a new all-time intra-day high of 1500 on Apr 22 ‘10. It turned out to be a ‘reversal day’ (higher high, lower close) – warning of a reversal of the up trend.

The first leg of correction found support from the rising 200 day EMA in May ‘10 and then again from the 1222 level, before rising to 1429 in Jul ‘10 – forming a bearish double-top pattern and confirming the trend reversal.

The stock has been on a down trend since then, preceding the correction in the broader markets. Except for a brief rally from Feb ‘11 to Apr ‘11, the downward slide has been unabated. Note that the bottoms in Feb ‘11 and May ‘11 occurred on the projected line from the top boundary of the flag formation!

The stock price has made a bearish ‘rounding-top’ pattern, which is clearly visible in the 200 day EMA. All four technical indicators are bearish, so the 15 months correction hasn’t ended yet. There is long-term support at 1010, and below that, stronger support is at 900.

The zero-debt company is fundamentally strong – practically a monopoly business that generates a ton of cash from operations, and pays regular dividends (twice a year since 2005). For the past few quarters, growth has been tepid and profits have been flat. That doesn’t really justify the 32.7% correction from the Apr ‘10 intra-day high of 1500 to the May ‘11 intra-day low of 1010.

Bottomline? The stock chart pattern of Container Corporation has undergone a significant correction. While another 10% correction can not be ruled out from current level, small investors would do well to start accumulating slowly instead of chasing after ‘cheap’ stocks.