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Precious Metals Charts Point to Higher Prices – Get Ready

Chris Vermeulen – www.GoldAndOilGuy.com

Over the past week precious metal investors have had a wakeup call from their big shiny nest eggs. Last week’s free fall in both gold and silver spot prices was enough to get investors into a panic. More on this in a minute though…

The fall was triggered by three key factors which caused the powerful move down. The first factor is based on pure technical analysis (price and volume patterns). Because the metals had such a strong run up this summer and prices had moved to far too fast, it is only natural so see price correct back to a normal price level. In general any investment that surges in one direction in a short period of time almost always falls back down shortly after. As I stated in my weekly report on August 31st, gold is forming a topping pattern and all investors should take profits or tighten protective stops (exit orders)”. Three days later gold popped to the new high completing the pattern and was quickly sold off which continues to unfolding as we speak from $1920 down to $1532 in only a couple weeks.

The second factor which I think had the most power behind the drop were the margin requirements changes. This new rule literally overnight caused traders and investors holding to much of the metals in their account to liquidate (sell) their positions without having any say in the matter. That is when the most damage was done to the price of gold and silver.

The key factor was the US Dollar which rocketed higher and adding a lot of pressure to the metals. I also covered this in my Aug 31st report in detail. Overall, past few years we have seen both gold and silver move in opposite direction of the dollar. I don’t expect that to change much going forward. Back in August the US Dollar was coiling (building power) and it was only a matter of time before it would explode to the up side and rallied. This high probability move in the dollar was what triggered me to exit our long gold positions shortly after. I expected the dollar rally to last a month or more and that means we would see a lot of pressure on equities and metals going forward.

Now keep in mind, if Greece or other countries continue to get worse then we could see the dollar and gold move higher together as they are seen as the safe haven at this time. But with the nature of the two I am anticipating a rising dollar and sideways trading range for gold.

Ok, so back to precious metals investor sentiment…

Last Friday and all of this week I have been getting emails from traders and friends saying they are going to sell their gold and silver because they are concerned metals will continue to fall and because many of them are now losing money after chasing prices higher through the summer. The good news is that one of my best indicators for helping to time market tops and bottoms is to just read my emails and answer the phone. During market tops, generally the final month when prices are soaring to new highs every day/week is when everyone contacts me and says they just bought gold or are about to buy more gold cause it’s such a great investment. Once I start getting 2-5 of these messages a day alarms start going off in my head. This works the same with market bottoms. So with everyone now in a panic and selling their positions I feel we are darn close to one if we did not see it already…

Let’s take a look at the charts…

Silver Spot / Futures Price Chart

As you can see on the hard right edge silver is forming a very similar pattern which happened this past spring. I would like to note that this type of pattern is typical with extreme market selloffs as to how they generally bottom. I am anticipating silver trades in this range for a couple months and that we could see lower prices in the near term. But my upside target for silver in the coming few months is the $35-$36 level.

 

Gold Spot / Futures Price Chart

Gold is doing much the same as silver but I have noticed that when gold falls hard the second dip generally does not make a new low as often. If we do get a new low, all the better for buying on the dip but overall I feel gold should trade sideways for a couple months. My upside target for gold is the $1750-$1775 area.

 

US Dollar Index Price Chart

The Dollar index is looking ripe for another bounce and possibly another rally to new highs in the coming week. If this happens then we should see the SP500 short position (SDS) which we took Tuesday afternoon (Sept 27th) to continue rocketing another 5-8% in our favour again.

 

Mid-Week Trading Conclusion:

In short, I feel the US dollar is going to continue higher and that will put the most pressure on stocks, oil and silver. Depending how things evolve overseas gold could hold up and possibly rise with the dollar.

So far subscribers have pocketed over 40% gains this month using ETFs on the SP500, Dollar and Oil and are holding another winning trade in the SDS etf taking partial profits today. If you would like learn more about etf trading and receive my daily pre-market videos, intraday updates and detailed trade alerts which even the most novice trader can follow then join my free trading education newsletter and my premium trading service here: http://www.GoldAndOilGuy.com

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High Volume Resistance Plagues Precious Metals, Oil & SP500

Sunday Aug 29th, 2010
Last week was a relatively strong week for stocks and commodities. Although the SP500 closed slightly lower on the week the price action Friday was strong. The recent pop in commodities has everyone feeling good and bullish again and we all know how the market works… When everyone is feeling good the market has a way of shaking things up.

Below are a few charts showing heavy volume resistance levels that will most likely cause the broad market & commodities to pullback or trade sideways for a few days as buyers and sellers play tug-o-war.

SLV – Silver Bullion ETF Trading

Silver had a very nice pop last week but if you step back and look the recent price action you can see that it’s still trading below the previous major bounce from back in June. It looks as though silver is a little over extended as large percentage moves tend to give back 25-50% of the mover shortly after.

Take a look at the price by volume bar. It shows there has been heavy volume traded at that $19.00 level and the previous time it was reached sellers stepped back in pulling silver down.

GLD – Gold Bullion ETF Trading

Gold is trading deep into the resistance level and struggling to hold up. Last week we went long GLD after the bullish engulfing candle and took profits near the high two days later on Thursday’s price. Although gold is trading at resistance the intraday price action remains somewhat bullish/neutral for the time being.

USO – Oil ETF Trading

The oil ETF broke down from its large multi-month bear flag and is now bouncing up to test that breakdown/resistance level. This could be a possible kiss good bye. I will keep my eye on this commodity as it could provide us with a great shorting opportunity in the coming days.

SPY – SP500 ETF Trading

The equities market has been tried to bottom all week and Friday’s price action looks strong. While the chart looks strong the market internals are telling me the opposite. Last week we saw a gap down and Friday that gap window was filled. With heavy volume resistance just above the current price the odds are pointing to lower prices.

Weekend Equities and Commodities ETF Trading Report:

In short, it looks as though everything is trading just under or at resistance levels. That means sellers will start to enter the market and cause prices to stall (trade sideways/choppy) and or reverse lower.

That being said, with Friday’s strong close for oil and the sp500 I am expecting a gap higher in the morning because traders will review those charts this weekend and enter the market Monday feeling bullish.

If you would like to get my ETF Trade Alerts for Low Risk Setups checkout my service at: www.TheGoldAndOilGuy.com/specialoffer/signup.html

Chris Vermeulen

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3 Different Head & Shoulders – 3 Different Investments Gold Silver and the US Dollar

Everyone is talking about gold shooting to the moon because of the massive reverse head & shoulders pattern forming, not to mention the economy isn’t as good as some of us would like it to be?. I put together this quick report to show the bearish side of things for once.

Bearish Points for Gold & Silver:
• Silver looks to be forming a H&S pattern
• Gold made a new high in March and quickly sold off
• Gold’s neckline is angled up which makes for a weaker breakout if it occurs
• The US Dollar looks ready for big rally.

SLV ETF – Weekly Chart
Silver is a great performer but we may have to start looking at shorting precious metals in the coming months if prices start breaking down.
1SilverHeadAndShoulders


GLD ETF – Weekly Chart

I like to be bullish on precious metals but these charts don’t provide much comfort. I will admit there are bunch of different ways to draw this gold chart which can make it look very bullish. But we cannot forget that the market will hurt the most individuals possible and we must be ready for these moves when they happen. Most traders think gold is going to breakout to the up side because of the economy and the famous Gold Reverse H&S pattern. But if everyone thinks this already wouldn’t everyone already be in gold? Who is going to buy gold to take it to the next level??

Also I want to point out that this reverse H&S has a neckline angled up which in my opinion is not a good sign. It shows the price was allowed to move above the previous pink high to suck in traders/investors as they panic to buy the breakout. Soon after buying gold they get taken to the cleaners as price plummeted. I just know from day trading that this type of head & shoulders pattern is not as accurate to trade and I avoid them (price patterns perform the same in all time frames).
2GoldHeadAndShoulders

US Dollar – Weekly Chart
Take a quick look at the US dollar. It formed a very nice H&S pattern and broke down to the measured move area quickly. Also this chart looks like a large bull flag and could start to move higher from this support level in the coming months. If this happens we will see precious metal prices drop.
3USDHeadAndShoulders

Technical Trader Conclusion:
The precious metals market is under pressure from the US dollar and some major resistance levels. Overall silver is underperforming gold and I look at silver as leading indicator. We are currently in cash waiting for a low risk setup for gold, silver, oil and natural gas.

If you would like to receive my free weekly trading newsletter please visit my site: www.GoldAndOilGuy.com

Chris Vermeulen