Gold and Silver Trading Alert: Important Price-Volume Link

By: Przemyslaw Radomski | Fri, May 16, 2014
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Gold & Silver Trading Alert originally published on May 16th, 2014 8:16 AM:


 

Briefly: In our opinion speculative short positions (half) are justified from the risk/reward perspective in gold, silver, and mining stocks.

The situation in the currency and precious metals markets developed to a large extent as we had outlined it yesterday. The USD Index paused, but gold, silver, and mining stocks caught up a bit in terms of the reaction to the previous dollar's moves. Let's take a closer look (charts courtesy of http://stockcharts.com).

US Dollar Index Daily Chart

Basically, everything that we wrote yesterday about the USD Index, remains up-to-date:

The USD Index paused after moving very close to the declining short-term resistance line. That's not really surprising - the previous move up had been quite sharp, so it's no wonder that we saw a breather. No market can move up or down without any corrections. However, the USD Index is after long- and medium-term breakouts and thus the continuation of the rally is to be expected.

The short-term USD Index chart reveals that there is one additional resistance level that needs to be taken out before the USD can rally much higher - the declining line based on the February and April highs. Once we have the USD Index above this line and the breakout is confirmed, traders should become convinced that the next move in the U.S. dollar is up, and that's when we might see metals and miners finally respond to the USD Index' strength (by declining).

SPDR Gold Trust Shares Daily Chart
Larger Image

Yesterday, we wrote that GLD ETF had moved higher on tiny volume, which was a bearish sign. Another bearish sign (or more precisely: not a bullish one) was that we didn't have gold above the previous local high. Moreover, we emphasized that this week's small upswing hadn't made gold move above the 50-day moving average and that the small move higher still seemed to be a counter-trend move.

The above is up-to-date and yesterday's session confirms it - the GLD declined on volume that was significantly bigger than the volume accompanying the previous daily rallies.

Market vectors Gold Miners Daily Chart

The "lower highs" observation applied to the mining stocks sector and the bearish price-volume implications were seen here as well. Just as it is the case with the gold market, the situation remains bearish, and yesterday's decline on relatively big volume confirms it.

The precious metals sector usually declines in the middle of May, so we have bearish implications also from this perspective.

Summing up, the outlook for gold, silver, and mining stocks remains bearish, but not extremely bearish, which means that we don't increase the size of the short position just yet. Precious metals are not responding strongly (we have seen some reaction yesterday, though) to the dollar's rallies so far, but it seems that investors and traders are simply waiting for a confirmation of the breakout in the USD Index (there have been cases when the metals' reaction was delayed in the past). Plus, silver's strong performance and the lack thereof in the case of mining stocks, plus lower highs in gold and mining stocks are a bearish combination.

To summarize:

Trading capital (our opinion): Short positions (half) in: gold, silver, and mining stocks with the following stop-loss orders:

- Gold: $1,326
- Silver: $20.30
- GDX ETF: $25.20

Long-term capital (our opinion): No positions
Insurance capital (our opinion): Full position

Thank you.

 


You will find details on our thoughts on gold portfolio structuring in the Key Insights section on our website.

As always, we'll keep our subscribers updated should our views on the market change. We will continue to send them our Gold & Silver Trading Alerts on each trading day and we will send additional ones whenever appropriate. If you'd like to receive them, please subscribe today.

 


 

Przemyslaw Radomski

Author: Przemyslaw Radomski

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Gold & Silver Investment & Trading Website - SunshineProfits.com

Przemyslaw Radomski

Przemyslaw Radomski, CFA (PR) is a precious metals investor and analyst who takes advantage of the emotionality on the markets, and invites you to do the same.

His company, Sunshine Profits, publishes analytical software that anyone can use in order to get an accurate and unbiased view on the current situation.

Recognizing that predicting market behavior with 100% accuracy is a problem that may never be solved, PR has changed the world of trading and investing by enabling individuals to get easy access to the level of analysis that was once available only to institutions.

High quality and profitability of analytical tools available at www.SunshineProfits.com are results of time, thorough research and testing on PR's own capital.

PR believes that the greatest potential is currently in the precious metals sector. For that reason it is his main point of interest to help you make the most of that potential.

As a CFA charterholder, Przemyslaw Radomski shares the highest standards for professional excellence and ethics for the ultimate benefit of society.

Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and best silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.

Disclaimer: All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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