Gold and Silver Chart Patterns: pullback rallies

Gold Chart Pattern

Two weeks ago, the following comment was made about gold’s price chart: “A pullback to the long-term moving average was only to be expected, and has been in progress for the past three trading sessions.” Some times, price charts provide an ego boost to technical analysts by behaving exactly as per expectations. The pullback reached the still-rising 200 day SMA, only to encounter selling pressure and plummet to a close below the 1550 level.

The break down below the symmetrical triangle pattern and the pullback to the 200 day SMA were both selling opportunities. At the time of writing this post, another pullback attempt is in progress to prevent a bear market – but it may meet the same fate as the previous one. The 14 day SMA is about to drop below the 200 day SMA. A close below 1520 will confirm a bear market.

Technically, the support at 1550 hasn’t been convincingly breached yet because gold’s price jumped up after a single day’s close below 1550. There is stronger support between 1450 and 1480, if 1550 does get breached eventually. Can gold’s price fall even lower? Anything is possible once the bears get the upper hand – and the technical signals are looking ominous for bulls.

Silver Chart Pattern

There are no doubts about bear domination of silver’s chart pattern. The white metal dropped to a new closing low of 26 for a day before embarking on a sharp pullback. The 14 day SMA (as well as the 30 day and 60 day SMAs – not shown in the chart) is falling below the 200 day SMA and silver’s price is trading below both SMAs – the sign of a bear market.

Stay away till trend-reversal signals become visible.

Gold and Silver Chart Patterns: an update

Gold Chart Pattern

In a post two weeks back, the possibility of a break below the symmetrical triangle pattern on gold’s price chart had been mentioned, even though gold was trading way above its rising 200 day SMA. A downward target of 1450 was also mentioned. Such huge drops – from 1750 to 1450 - don’t happen in one shot. But the drop of 150 within two weeks must have shaken the confidence of die-hard gold bulls.

A swift and steep drop below the 200 day SMA stopped just short of the support level of 1550 (where multiple tops were formed in May and Jun ‘11). A pullback to the long-term moving average was only to be expected, and has been in progress for the past three trading sessions.

The 14 day SMA is falling towards, and may soon drop below, the 200 day SMA. That will be the first warning of a likely change of the bull trend. The 30 day and the 60 day SMAs – not shown in chart above – are also falling. Note that the ‘panic bottom’ of 1600 – formed in Sep ‘11 – has been broken. Panic bottoms seldom hold.

The break down below the triangle was a selling opportunity. So is the current pullback. Long-term holders who may have entered at lower levels can stay invested with a stop-loss at 1550.

Silver Chart Pattern

The 200 day SMA has just about started to fall as silver’s price is moving down towards the lower edge of its downward channel. All the three moving averages – 14 day (in chart above), 30 day and 60 day SMAs – have crossed below the 200 day SMA, with silver’s price trading below all four.

Silver is in a bear market, and can fall to much lower levels. Looks like ‘game over’ for the bulls.

Gold and Silver Chart Patterns: consolidating

Gold Chart Pattern

Gold’s chart has been consolidating within a symmetrical triangle pattern (in yellow) for the past 10 weeks or so, and is ripe for a break out of the triangle. In which direction? Knowing the answer can make some one seriously rich! Triangles are quite unreliable and the break out can occur in either direction.

On an upward break out – which should be accompanied by heavy volumes for the break out to be valid – gold’s price can reach 2000. On a downward break, the price can fall to 1450. There is a third possibility. Gold’s price can continue to consolidate and move sideways through the apex of the triangle (at around 1725). In the latter case, the triangle pattern would fail.

Since gold’s price chart is in a bull market – it is trading well above its rising 200 day SMA – an upward break out has greater probability. But technically, the chart is showing some weakness. Note that the recent rally faced resistance from the 1750 level and failed to reach the upper edge of the triangle. That may be a prelude to a break below the triangle.

Await the break out before taking a decision to buy or sell.

Silver Chart Pattern

Ever since the steep drop below the 200 day SMA about 10 weeks back, silver’s price has been in a sideways consolidation between 28 and 36. The 200 day SMA is beginning to flatten out and should start falling – confirming a bear market.

In my previous post, I had mentioned that silver’s price has been trading within a downward-sloping channel (in yellow). The trend is down, and will remain so till the upper end of the channel is convincingly breached. With manufacturing activities contracting in Europe and the emerging markets, there is little likelihood of a boost in silver’s price any time soon.

Stay away till clarity emerges about a resolution of the Eurozone debt problems.

Gold and Silver Chart Patterns: an update

A few months of correction, and all the chatter about a return to the gold standard and the dollar no longer being a reserve currency is off the table! The signs of revival seen on the chart patterns of gold and silver two weeks back proved to be illusory.

Both precious metals are now trading below their 14 day, 30 day and 60 day SMAs, and may drop down to test their Sep ‘11 lows. Will that provide a buying opportunity?

Gold Chart Pattern

The answer should be ‘Yes’ for gold, because it is trading well above a rising 200 day SMA and is in a bull market. Note that the 1750 level provided good support till gold’s price chart formed a small ‘double-top’ reversal pattern and suddenly dived on Thu. Nov 17 ‘11.

A test of the 1600 support level is on the cards. The support should hold since the 200 day EMA is also near 1600. Just in case 1600 gets broken – nothing is certain in technical analysis – 1530 should be a stronger support due to the multiple tops formed near that level during Apr – Jun ‘11.

The downside to a bounce up from 1600 is that a bearish ‘descending triangle’ will get formed, from which gold’s price may fall all the way to 1300. This is a hypothetical possibility as of now, so no need to be alarmed. Let the chart pattern unfold. But it may be prudent not to be gung-ho bullish about buying the likely bounce up from 1600.

Silver Chart Pattern

The answer to the question is ‘Not yet’ for silver, because the white metal and all three of its moving averages (only the 14 day SMA is shown on the chart) are trading below the 200 day SMA – which indicates a bear market. The Sep ‘11 low of 28 may be tested and broken.

Note that silver’s price was consolidating within a small symmetrical triangle formed near the support level of 34, before breaking down sharply on Thu. Nov 17 ‘11. Drawing lines through tops formed in Apr ‘11 and Aug ‘11, and bottoms formed in May ‘11 and Sep ‘11 will form a broad downward-sloping channel pattern with its lower end currently at 26. That is a level which provided support in Nov ‘10 and Jan ‘11 – so an upward bounce can be expected from 26.

Bravehearts may try to bottom-fish at 26. Conservative investors should buy only on a convincing break out above the downward-sloping channel.

Gold and Silver Chart Patterns: trying to find bottoms

Gold Chart Pattern

In the previous post, I had mentioned about a possible bullish ascending triangle pattern formation on gold’s chart - from which an upward break out was likely. Ascending triangles tend to be fairly reliable. But not so this time. An attempted upward break out was thwarted by the bears.

Selling pressure pushed down gold’s price below its 14 day and 30 day SMAs. However, the previous low of 1480, touched in May ‘11, seems to be providing support. If the support holds, gold’s price will form a rectangular consolidation pattern – within 1480 and 1550. Rectangles  are usually continuation patterns – which means an upward break out is likely.

What should investors do? The earlier suggestion stands: buy on a break out above 1550. An analyst friend, whose bold views I admire, believes that gold’s price can double by the end of 2011 – because current demand is far outstripping supply. Apparently, a detailed report by Standard Chartered has echoed his bullish views.

Caveat Emptor. 

Silver Chart Pattern

Silver’s chart pattern had been consolidating within a symmetrical triangle, after dropping from its peak of 48.70. Symmetrical triangles tend to be continuation patterns, and I had expected a downward break below the triangle, followed by a test of support from the rising 200 day SMA.

Silver’s price did break below the triangle, but is trying to find a bottom at the support level of 34. Will the support hold? May be not. A test of the previous low of 32.50 and the 200 day SMA can’t be ruled out yet.

The white metal is trading below its 14 day, 30 day and 60 day SMAs after making a series of lower tops and lower bottoms. The short-term and medium-term views are bearish. Bulls should not lose heart – as long as silver trades above its rising 200 day SMA.

Gold and Silver Chart Patterns: an update

In my previous post on Gold and Silver Chart Patterns, I had mentioned about a pair-trading opportunity. Going through that post, I realised that instead of recommending 'long gold, short silver', I had written the exact opposite.

For any one who had read through the entire post, it would have been clear that I was bullish about the gold chart and bearish about the silver chart. However, as a penance for the error, I'm going to refrain from making any more trading recommendations.

Gold Chart Pattern 

Gold's price dipped below the rising 14 day SMA, but was well supported by the 30 day SMA. By Fri. Jun 17 '11, gold's price managed to close above the 14 day SMA - indicating that investors are using all dips to buy.

As long as the recent high of 1565.70 - touched in Apr '11 - is not surpassed, the bears will try to make life difficult for the bulls. But may not be for long. A bullish ascending triangle appears to be forming on the gold chart, from which a likely upward break out can easily take gold's price past the 1600 mark.

Stay invested with a trailing stop-loss. Buy on a break out above 1550.

Silver Chart Pattern 

Silver's price chart continues its consolidation within a symmetrical triangle, and is now trading below the 14 day, 30 day and 60 day SMAs. Triangles tend to be unreliable, but are usually continuation patterns. Since silver's price entered the triangle from above, it is likely to break below the triangle and test support from the still rising 200 day SMA.
Buy if there is a sharp upward bounce from the 200 day SMA.

Stock Chart Pattern - Colgate Palmolive India (an update)

I had written an analysis of the stock chart pattern of Colgate Palmolive almost two years back. It was interesting to go through some of the comments on that post – including one where I had mentioned that the stock could be bought at any price.

In a post on FMCG sector stocks in Jan ‘11, a brief update was provided. The stock was consolidating within a symmetrical triangle after touching an intra-day high of 996 in Nov ‘10. Partial profit booking was suggested as the stock had entered the triangle from above, which indicated a possible break below the triangle.

The one year bar chart pattern of Colgate Palmolive shows some interesting technical developments that exemplify how strong the stock is technically:

Shortly after I wrote the brief update in Jan ‘11, the stock dropped below the triangle, took support from the 200 day EMA as expected, and jumped back inside the triangle. That was a warning of what was to follow.

By the end of Jan ‘11, a high volume break down breached the 200 day EMA and reached an intra-day low of 783 on Feb 2 ‘11 – correcting 21% from the Nov ‘10 peak of 996, slightly underperforming the Sensex (which lost 18%).

Despite spending several trading sessions below the 200 day EMA in Feb ‘11, the stock started to recover and by Apr ‘11 had moved up to the resistance level of 918 – its closing high in Sep ‘10. A sideways consolidation till May 10 ‘11 culminated in several unsuccessful attempts to break out above 918. The negative divergences in all the technical indicators ‘resisted’ the break out attempts.

A correction in a narrow downward channel breached the 20 day EMA but found support from the 50 day EMA. Today’s spurt on good volumes pushed the stock above the 918 level once more – but not convincingly as yet.

Note that the entire corrective move after touching the Nov ‘10 peak, including the consolidation within the symmetrical triangle, has formed a bullish cup-and-handle continuation pattern. A test and likely breach of the previous top is on the cards.

The technical indicators are turning bullish. The MACD has changed directions in the positive zone, though it is still below the signal line. The ROC has climbed above its falling 10 day MA into positive territory. The RSI bounced up from the edge of its oversold zone and is touching the 50% mark. The slow stochastic has moved up from its oversold zone towards the 50% level.

Fundamentally, the stock remains as solid as ever – growing its top and bottom lines, generating a ton of cash from its operations, with negligible debt in its books. The reserves have been built up considerably. A bonus issue won’t be a surprise. Like most FMCG companies, margins are under a bit of pressure.

Bottomline? The stock chart pattern of Colgate Palmolive is poised to test, and possibly breach, its all-time high of 996. The stock has been in a bull market since touching its 2007 low of 300 – tripling in four years. This is the kind of stock that small investors should buy whenever they have some spare cash, with the object of leaving it as a family treasure for future generations to enjoy.

Stock Chart Pattern - Sesa Goa (An Update)

Several interesting technical patterns were observed in the stock chart of Sesa Goa in the previous update back in July ‘10. The stock had been consolidating within a symmetrical triangle after falling from its Apr ‘10 top 0f 493.

Triangles are notorious for being unreliable – a stock’s price may break out upwards or downwards; it can fizzle out through the triangle’s apex, losing any technical significance. But they tend to be continuation patterns.

Since the stock had entered the triangle from above, I had guessed that the likely break out would be downwards. The 15 months bar chart pattern of Sesa Goa shows some more interesting technical phenomena:

‘Normal’ break out points from a triangle occur at about two-thirds or three-quarters of the distance from the base of the triangle to the apex. Some times – but not always – a break down close to the apex will tend to pullback to the horizontal line drawn through the apex, and provide a good opportunity to sell.

Not only did Sesa Goa’s stock price pull back to the horizontal line through the apex in Jul-Aug ‘10, it did so a second time in Oct ‘10 – providing another selling opportunity. In between, two other interesting things happened technically.

The blue circle (in Aug ‘10) indicates the ‘death cross’ of the 50 day EMA below the 200 day EMA – confirming a bear market. Prior to that, the stock had made a ‘panic bottom’ at 312 on very high volumes – falling more than 35% from the peak of 493.

Panic bottoms occur quite often during bear markets. Investors would do well to recognise them as a warning bell for worse to follow. Panic bottoms are almost invariably tested and broken.

Note that after the ‘death cross’ in Aug ‘10, the stock made three unsuccessful attempts to move above the 200 day EMA – forming a bearish pattern of lower tops and lower bottoms. Is it all doom and gloom then? Has the tax on iron ore exports and ban on exports from Karnataka taken the wind out of the sail of this blue-chip company? The good Q4 results certainly don’t indicate that. Once the Petronas and Cairn acquisitions go through, the stock may reach its glory days again.

Observant readers may notice that the MACD, ROC and RSI made higher tops in Apr ‘11 while the stock made a lower top. The positive divergences seem to be helping the stock price to stage a revival.

The MACD is negative and below the signal line. The ROC is also negative, but has climbed above its 10 day MA. Both the RSI and slow stochastic have emerged from their oversold zones, but are well below their 50% levels.

Bottomline? The stock chart pattern of Sesa Goa is showing the effects of fundamental and technical headwinds. This is a good portfolio stock for patient, long-term investors. The best time to buy such stocks is when no one wants them. Buy on a convincing break above the 200 day EMA, with a stop-loss at 255.