Wednesday, September 26, 2007

I Need A Nap

Gold and Silver look at this point to be a little tired. Consolidation, including a shallow dip for each, may be imminent. Both will offer many trading opportunities on the trip to the moon. This may be one of many. Click on the charts above to enlarge.

As you can see by the RSI on both charts, Gold and Silver have become overbought. The long wicks on the top of the candles up here are a sure sign that the Bulls have been unable to push prices higher, and are in need of a break. MACD on both has begun to rollover and the RSI uptrend in both has been broken, as has the steepest uptrend in price. A break in the trend of RSI is often predictive of a reversal in price.

I have suggested over the past couple days that Gold would meet a head wind at 735, and so it has. Unable to press higher in the face of resistance here, Gold would do well to pause here for a "consolidative dip". Gold typically finds support at it's 50 day moving average during powerful uptrends, and tests of that moving average should be looked at as a positive reaction until it does not serve as support. Use tests of the 50 day moving average to replace portions sold for profit or add new positions. Gold tested it's 50 day moving average on four separate occasions as it rose from September 2005 to it's then high at 730 in may 2006. Expect the same as Gold shoots for the Moon in the coming months. Golds 50 day moving average is rising AND it is above it's 200 day moving average. I anticipate Gold consolidating through the month of October until it's 50 day moving average catches up with price above 700. A 38% retracement of our recent high off the August low would be 702.

Silver has made a 23% move up off it's August low. As much as I'd like to see it rocket higher, I can understand the Bulls being a bit tired here. It is interesting to note that Silver's 50 day moving average is still below it's 200 day moving average. Many Bulls won't even touch a market until the 50 day is above the 200 day. Silver has only in the past week broken thru it's 200 day moving average. A retest of the 200 day moving average would almost be expected with the 50 day moving average still below it. Silver would also benefit from a "consolidative dip" here. Silver's 200 day moving average "should" provide firm support as it coincides at this time with the established uptrend in Silver off the August low. However we all know the "insanity of silver", and a dip to the area around the 50 day moving average and 38% retracement of the recent high should not be too alarming...but a great buy opportunity. Silver follows Gold, and a consolidation through the month of October can be expected as well.

Those considering a short trade here be warned: It is dangerous to short in a Bull market. Both Gold and Silver have established strong Bull moves off their August lows and September to December is seasonally bullish for both metals. In today's global economic mess, these Bulls can wake from a nap at a moments notice, and bury a short trade just scrambling to get to their feet. Gold AND Silver a going much higher this Fall. Don't get caught in a sucker's bet.

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