Was that a False Breakdown in Precious Metals?
- Posted by JC Parets
- on January 3rd, 2012
In my opinion, the important resistance in $GLD was around $151.50-$152 up until mid-July. On July 13th, the SPDR Gold Trust gapped higher and rallied another $35 to record highs into September. As usual, Escalator Up & Elevator Down, $GLD was back down to $154 by the end of the month. After a brief rally, $GLD came back down to test the former resistance (now support) on December 14th & 15th. We saw a successful test and bounce until the low volume week between Christmas and New Years.
Take a good look at what happened last week. There was a big sell-off in $GLD on Wednesday the 28th closing at the lows below key support. The following day $GLD gapped down and reversed higher making December 29th the key reversal day. Strange things happen on weeks like this. Sure enough, we rallied into the new year and gapped up higher today like if the breakdown never happened. Remember: From False Moves Come Fast Moves (in the opposite direction). My friend Brian Shannon @alphatrends & alphatrends.net cannot stress that enough and I couldn’t agree more.
Was that the shake out necessary to put in a temporary bottom in Gold? It’s all about looking for good risk/reward opportunities that match your objectives. FYI – Nice little bullish divergence in RSI while all of this was happening last month.
Now let’s look at Silver. This one is much more simple. Key lows in $SLV were made on September 26th & October 4th making important support around $27.40-$28.00. Since the ETF had key reversals on both of those days I think that this is the level we want to watch. Well, just like in Gold, $SLV broke below that key support on Wednesday the 28th and then gapped lower before reversing on Thursday just like $GLD.
This morning we saw nice little gap higher like if nothing happened last week. From False Moves Come Fast Moves (in the opposite direction). Again, another bullish divergence in RSI as the oscillator made higher lows in December while price made lower lows. Like $GLD, nice risk/reward opportunities depending on your objectives and time horizon.
This is my favorite type of trade set up. I love false moves – they’re a gift from the market gods. They don’t always work, but when they do – profits come quickly and the risk can be minimal with disciplined risk management. If key support levels get taken out again in $GLD or $SLV, then all bets are off – we’re wrong and we move on. At the very least, it will be interesting watch as the trade develops. Stay disciplined my friends.
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J.C. Parets is the Founder & President of Eagle Bay Capital, LLC. He earned the Chartered Market Technician designation (CMT) in 2008 and now actively manages money incorporating Technical Analysis and Behavioral Finance into his practice More
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