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Dow, Gold and Silver - A Last Stand, A Fake Out And A Surge

The Dow hit a marginal new all time high during the last week. So let's see where things stand there first.


Dow Daily Chart

Dow Daily Chart

Before we get to the present, let's take a quick look at the past. We can see the previous top in July was accompanied by triple bearish divergences in several indicators, being the Relative Strength Indicator (RSI), Stochastic indicator and Moving Average Convergence Divergence (MACD) indicator. That led to a significant decline.

Then we had a rally that clipped the previous high by a mere two points. I thought this would be a bear rally but have been proven wrong. However, a profit was taken by identifying the previous top and the start of the rally. Some profit was given back re-shorting but the mistake was quick to be picked up so no major damage was done. It's nice when you can be wrong and still make money! But that's chump change as far as I'm concerned. I'm after the big plays.

So that brings us to the present.

I have added Bollinger Bands which shows the rally heading straight back up to the upper band and showing strength by not reversing straight off it but going on with the job, so to speak. Price is now moving away from the band so perhaps we could expect it to reach the middle band as part of a stock standard correction.

I have added a Parabolic Stop and Reverse (PSAR) indicator, denoted by the dots, which is now bearish after breaking the dots a couple of days ago. This lends credence to a correction now. But, if it is indeed a correction, where is it likely to end?

I have added Fibonacci retracement levels of the recent rally. I only expect a marginal retracement in line with the strength being exhibited by the move up. A move down to the 23.6% or 38.6% levels should do the trick. These levels stand at 16960 and 16840 respectively. I favour the latter.

And let's not forget there is now a double top in place at 17153. That usually leads to a reaction down. However, this is a double top against the trend so it is unlikely that it is the end of the trend. Double and triple tops generally don't end trends. So, a correction only is likely before the next upleg smashes through to new all time highs.

And perhaps, after the correction and subsequent move to new highs, there will be yet further bearish divergences showing up in the lower indicators. Time will tell.

Let's move on to the weekly chart.


Dow Weekly Chart

Dow Weekly Chart

On the RSI, we can see recently price has broken the steeper trend line indicating the next move up. However, there is still the possibility of a third bearish divergence on the next high. That can also be said about the Stochastic and MACD indicators which have both recently had bullish crossovers suggesting the next multi-week rally is now underway.

I have added Bollinger Bands which shows price bouncing right off the lower band, now seemingly headed to the upper band to resume the uptrend.

Price also busted the PSAR resistance. This can be a fake out sometimes but with the positive weekly candle in place, it is likely a true bullish indication.

I have also added a trend line which, once broken, led to the sharp decline at the end of July. I suspect price is now about to do and "up and over" to finally end the bull trend. One last hurrah.

Let's finish off the Dow analysis by looking at the monthly chart.


Dow Monthly Chart

Dow Monthly Chart

While the July top showed a third bearish divergence on the RSI, it is possible that this next coming high will also show a triple bearish divergence by coming in lower than the RSI reading shown in the December 2013 top.

Both the Stochastic and MACD indicators continue to have a bearish bias with the red line above the blue line in both indicators. They are also both at high levels. Not sure how long they can stay up there?!!

The Bollinger Bands demonstrate the beautiful uptrend still in place. The recent correction didn't even touch the middle band. Perhaps the final thrust higher will spike up above the upper band before it's finished. The upper band is currently just above 17500 so I expect price to rise above that level.

The PSAR still retains a bullish bias with the dots underneath price.

Finally, the August candle was a positive outside candle. The low was lower than the July low while the high was higher. And it closed well in positive territory. It looks bullish.

All these factors suggest the bull market has further to go. But things look stretched. After a correction at the start of September, I favour a strong, near vertical, move higher that probably tops out at the beginning of October. The Dow's last stand.

Now let's change tack and look at the commodities of gold and silver. We'll start with gold.


Gold Daily Chart

Gold Daily Chart

We can see the move down on the 21st August with the big red candle. That looks to have exhausted the selling as there was no follow through to the downside. A bullish sign.

The Stochastic and MACD indicators are also showing recent bullish crossovers.

There may be a test of the low at the start of next week but it looks like we may well have a low in place here. Finally.

In the green highlighted circle, we can see the existence of a rather large gap. The upside of the gap stands at US$1367. I favour this coming rally to close that gap.


Gold Weekly Chart

Gold Weekly Chart

I've shown this chart before but it doesn't hurt to refresh ourselves. The two trend lines, one descending and once ascending, show price creeping ever towards the apex. The trend lines are due to meet at the apex in December 2014. Now, what is common to note here is that the next major move, whether up or down, should be made clear before the trend lines meet.

In a recent gold report, Gold Looking Drab, I stated that I thought the lower trend line would contain the move down. It has. A break down below there would look bearish. I doubt it will happen.

My opinion is that price will test the trend line again early next week before rising strongly on its way to taking out the upper trend line.

Taking out this upper trend line will get the bulls hooting and hollering that the next major gold bull market is now underway. Bollocks to that is what I say. The move above the trend line will be a fake out if my analysis is correct. This will be the contrarian's moment to shine.

I have added Fibonacci retracement levels which show a lot of symmetry with several highs and lows turning up or down at key levels. I favour the coming rally to get up to the 76.4% level at US$1373. This would also conveniently close the gap shown in the daily analysis.

Also, the RSI also looks to be forming the same triangle pattern. Once the rally top is in, a move to new lows should then be on the cards as the gold price moves to new lows itself.

Let's wrap up the gold analysis by looking at the monthly chart.


Gold Monthly Chart

Gold Monthly Chart

I've also shown this chart but I find it's always helpful to have the big picture in mind.

I have added a PSAR which shows the bear trend in full effect. I have stated before that I expect the dots to the upside to be taken out to relieve some of the negativity before the next down leg commences. Nothing has changed my opinion here.

I have added Fibonacci retracement levels of the bull trend from 2008 low to 2011 high. I am looking for this move down to finally reach completion at the 76.4% level which stands at US$973. This level is also below the psychological level of US$1000. If the gold permabulls are pulling their hair out now, then they will surely be bald by the time that level is broken!

I have added a RSI which shows strength building. This should eventually culminate in a rally high before the next plunge occurs taking the god price to new lows. I am looking for the final low to be accompanied by a higher low in the RSI. A nice little bullish divergence. Let's see.

Also, the MACD indicator is trending up indicating the likelihood of higher prices. However, it is in weak territory so a move to new lows shortly will be of no surprise here.

Now, let's look at gold's cousin, silver.


Silver Daily Chart

Silver Daily Chart

The lower indicators, the Stochastic and MACD, are both showing recent bullish crossovers after being down in the dumps for quite a while. This looks promising.

The RSI is showing a triple bullish divergence. Nice.

I have added Bollinger Bands which show price recently moving away from the lower band and hitting the middle band for the first time since this move down began. Things are looking nice here. It's not out of the question for price to have one last drop back to the lower band but that should be fleeting if so.

The PSAR indicator shows the dots now underneath price suggesting bullishness.


Silver Weekly Chart

Silver Weekly Chart

The lower indicators, the RSI and MACD, have both been showing a bullish trend at each consecutive low. Perhaps this is leading to the finale of this big consolidation pattern with one last surge to come.

I have drawn a black down trending line which was broken back in June. This led to some euphoria amongst silver bulls and that should reach a crescendo when this next leg kicks off. This trend line now provides support and a move back below it would be very bearish. Unlikely in my opinion.

Last week's candle shows a positive outside reversal. That is, the low was lower than the previous week while the high was higher. And it closed in positive territory. This is bullish and while it's possible for price to dip to marginal new lows, price should then reverse sharply back up making a positive double outside reversal candle. Something to keep in mind.

If price now makes a clear break of last week's low, it would be very bearish. I doubt that scenario.

As for where the rally might end, in my last silver report I stated the 76.4% Fibonacci level at US$23.48 was likely. Quite frankly, I think this is too low. I'm looking for a big rally in silver that will make gold look like its poor cousin. I have added the rarely used 88.6% level which stands at US$24.33. I'm targeting around this level for the rally to terminate.

Now let's look at the monthly chart.


Silver Monthly Chart

Silver Monthly Chart

I've also shown this chart before and I still find no reason to disagree with it.

I have added Fibonacci retracement levels of the move up from 2008 low to 2011 high. Price is finding support around the 76.4% level of US$18.10. I now suspect a rally back up to the 61.8% level. Interestingly, this level is right around the 88.6% level shown in the weekly analysis. Hmmm.

There is currently a triple bottom in place denoted by the numbers 1, 2 and 3. Triple bottoms generally don't end trends so I favour one last marginal false break low. Gann noted that the fourth attempt at support is usually successful. However, if it is not then that is an extremely bullish sign. In silver's case, I favour the fourth attempt will not be successful and that will lead to the next new uptrend. Up, up and away.........

Also, the green highlighted circle shows where price went parabolic back in 2010. Corrections often return to the area where this parabolic move commenced. Bingo!

The PSAR indicator shows the dots busted to the upside in July. Time for the rally to get a wriggle on!

The RSI shows each consecutive low in the triple bottom becoming less weak. Once this rally finishes and price comes back down, the RSI should break the uptrend line I have drawn and put in a low which could quite possibly be higher than the June 2013 low. A bullish divergence. Let's see.

The MACD is trending up and, while still weak, it is in a much stronger position than that of gold. A move back down after the rally ends may not be enough to alter this bullish trend.

I generally don't like betting against the trend but I'm prepared to make an exception here. I'm expecting this rally to put on more than 20% so I could but help myself in getting a sliver. I am long silver.

So, it appears that both gold and silver will move in unison for the time being. The moves up in all three instruments should be strong in the month of September with highs likely in October. Well, that's my opinion for what it's worth.

 

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