Sunday, March 11, 2007

Retesting Recent Lows Before Liftoff

The 50 Day Moving Average and the 200 Day Moving Average should be every traders best friend. Opportunity is more likely to knock in the presence of one or both of these moving averages than at any other time in a bull or bear market's existence.

In the one year [daily] chart above, the 200 Day Moving Average has proven to be solid support for the silver bull. The 50 Day Moving Average on the other hand, has offered little if any support. But if you look closely, it has offered "trading opportunities".
In the green circles lie our trading opportunities. Though past performance is no guarantee of future performance, this recent "trend in opportunity" has solidly established itself following the last three major sell-offs in the silver market. Silver sells off in a hurry, falling through the 50Day Moving Average like a hot knife though butter. Each time it establishes a low and quickly bounces back up to the 50 Day Moving Average. After "kissing the 50" it quickly rolls over to retest the recent low. It is important to note that a retest may, or may not go below the recent low that is being tested. It is this retest of the low that presents a major buying opportunity for silver traders. Use the internal indicators RSI and Stochastics as confirmation of the "setup" to take advantage of this trading opportunity. A stochastics crossover to bullish, once oversold, signals the door to opportunity has opened [green arrows on stochastics]. A failure to breach and hold above 50 on the RSI should signal the rollover [the green arrows on RSI] has begun, and will be confirmed by the stochastics crossing over to bearish. The brave trader may look for a quick short side trade here. Cover and go long at the next bullish stochastics crossover. It remains to be seen if that will occur at the blue trend line, or the 200 Day Moving Average. If past performance is our guide, a tremendous buy opportunity in silver may be soon upon us.
Silver Resistance: 13.10 / 13.23 / 13.35
Silver Support: 12.80 / 12.68 / 12.49
Gold Resistance: 657 / 663 / 672
Gold Support: 645 / 634 / 624
Make no mistake, despite gold’s rise from its $255 low in April of 2001 to over $650 as I write, so far, only the thinnest of trickles, a minor fraction of global capital, has made it into gold. When the flight to safety really heats up, the real fun will begin, and the price of gold won’t just add dollars, it will add digits.

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