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Gold And Silver Voodoo Analysis

Both gold and silver have had an uncharacteristic and bad month. Gold and silver usually shine in the month of September. Not the case this year. Quite the opposite really!

And I have been no better predicting a rally in both metals. Market 1, myself 0. The markets can be quick to humble and I am certainly not immune. But one key to being successful in this game is being able to drag oneself up from the mat when the chips are down and soldier on. So it is with a clear head and renewed focus that I present where the technicals currently stand as I see them.

We'll concentrate on the bigger picture using the weekly, monthly and yearly charts. Let's begin with gold.

Gold Weekly Chart

Gold Weekly Chart

The Stochastic and Moving Average Convergence Divergence (MACD) indicators are both still trending down indicating this move down likely has more left in it.

I have drawn black downtrending and uptrending lines that form a triangle. Price recently broke down below the downtrending line. I thought this would be a fake out. Nup, it was me that was faked out.

Price now looks headed to the horizontal line which would set up a triple bottom with the two previous lows around the US$1180 level. There should be solid support there and I expect a big rally to commence from this level.

I have added Elliott Wave annotations which show an A,B,C,D,E consolidation. I expect this move down to be wave D and then one last big rally to be wave E and finish the corrective wave 4 pattern. From there a move to new lows should ensue. So while I may have been wrong on a rally now, my general outlook remains firmly in place.

I have added Fibonacci retracement levels from the low to high of this consolidation pattern. I am expecting the coming rally to get up to the 76.4% level at US$1373. In fact, I suspect it can really push it to the limit getting up close to the previous high of $1387. I doubt price will trade above that high.

I have added Bollinger Bands and moving back up to the near the previous high would also conveniently hit the upper trend line. This toing and froing between the upper and lower bands is consistent with a consolidating market.

The rally should bust the black downtrending line which would see the bulls out in force once again calling the next great bull market underway. It is this move that I predict will be a fake out. Fool me once shame on the market, fool me twice shame on me!

Gold Monthly Chart

Gold Monthly Chart

The RSI, Stochastic and MACD indicators all appear to be trending up despite their recent pullbacks. The RSI looks to set up a triple bullish divergence on the third bottom. The triple bottom low should also be accompanied by bullish divergences on the Stochastic and MACD indicators.

I have added Bollinger Bands and a triple bottom low around US$1180 would conveniently hit the lower band. Then a rally up to the US$1380ish level would also conveniently hit the upper band. It all seems much easier in theory!

So, the short term goal now is for price to form a triple bottom, denoted by the numbers 1, 2 and 3?. However, triple bottoms general don't end trends so once the rally terminates, price could be expected to come back down and bust the triple bottom.

The Parabolic Stop and Reverse (PSAR) indicator is still bearish with the dots above price but I'd like to see price move up to bust those dots to relieve the bearish pressure. Then a swift move down could occur that finishes off the bear trend.

I have added Fibonacci retracement levels of the move up from 2008 low to 2011 high. As many readers will know, I am expecting the final low to occur in 2015 around the 76.4% level at US$973. This level sits below the important psychological level of US$1000 and busting that level should see the gold bulls enter a deep depression. Perfect conditions for the next great bull market to begin!

Gold Yearly Chart

Gold Yearly Chart

This chart clearly shows that a massive bull market is still in play despite the big pullback that has already taken place.

The RSI is still in positive territory and looks like a pattern the RSI would make in your run-of-the-mill pullback. The difference being this is the yearly chart. But the same principles apply.

Likewise, the Stochastic indicator. If this really is a long term bull market, then after this pullback it should head back up into overbought territory and crawl along the top just as it did from 2005 to 2013.

Now to the future. This is where the voodoo part comes in. I have drawn the candles for how I think the years 2014 and 2015 will look. Now this is an extremely subjective technique and I would advise beginners not to try this at home.

Much technical analysis revolves around analysing past patterns which is of course part of the process. I like to use that analysis in order to visualise not only the future direction but the pattern of trading that future direction will take. This provides a sort of price roadmap.

So, assuming we get a rally off a triple bottom, price should close out the year in positive territory. This may deceive many into thinking the bear market is over. My outlook calls for one last plunge into final low in 2015 before a big reversal higher takes place and closes out the year with a bang. If my analysis is correct, the candle for 2015 should be a big positive outside reversal candle.

I have added Bollinger Bands and the move down to final lows next year should hit the middle band. A stock standard pullback within an overall bull trend! Let's see.

Let's move on to silver.

Silver Weekly Chart

Silver Weekly Chart

The RSI and Stochastic indicators are both in oversold territory so a rally should commence shortly. One possibility is a little rally now before price drops to further lows and sets up a bullish divergence.

Price now seems to be hugging the lower Bollinger Band which is consistent with a downtrend.

The triple bottom is denoted by the numbers 1, 2 and 3. Triple bottoms rarely end trends and sure enough, this triple bottom was another one to bite the dust. Easy in hindsight, isn't it?!

As for where the next low will be, I prefer to be guided by gold. That is, wherever silver is when gold makes triple bottom around US$1180. I think both will bottom together.

Silver Monthly Chart

Silver Monthly Chart

The RSI, Stochastic and MACD indicators are all still trending up so surely something will have to give shortly. The coming low should be accompanied by bullish divergences on these indicators. The MACD looks to be threatening a bearish crossover but often this "kiss of death" is averted at the last moment as price rallies and the averages continue on their merry way.

The PSAR indicator was true to form with the break of monthly support at US$18.42 a timely indicator that new yearly lows were on the cards.

In my last report, I stated a move to new yearly lows below US$18.17 could give way to a capitulation. Upon further analysis, I doubt this scenario. Sure, price dropped hard on the break but that ain't no capitulation! (Love it when I can combine two grammatical errors in the same sentence).

I have added Bollinger Bands and price has now come down to the lower band. Obviously, I wasn't expecting this. Perhaps, considering the fact my money was on a silver rally, my judgement was clouded. Anyway, price is there now. And considering I don't favour a capitulation in price, this could be considered a downtrending consolidation and hence price shortly bounces all the way back up to the upper band which currently sits just above US$23.

In fact, this is exactly what I think is currently playing out. A downtrending consolidation pattern. Better said, a downtrend channel. I have drawn two black downtrending lines to denote a downtrend channel.

The coming low is labelled by the number 2. I expect after the coming low, price bounces back to the upper trend line before reversing and heading back down for a final low at 3. Common bottoming (and topping) formations are three marginally lower lows. I call this the "three strikes and you're out" formation as the third strike is generally the last.

I expect the move down to 3 to be fast and furious and full of momentum. This downtrend channel should be obvious by the time the next rally high is in so a move to slightly below the bottom channel line would freak out the bulls and run some stops. This final low could be anywhere from around US$15 to US$16.50. Once again, I prefer to let gold guide me here so wherever silver is trading when gold goes sub US$1000. I think both gold and silver will bottom around the same time. Then, the next great silver bull market could commence in earnest.

Now that price has broken below the 76.4% Fibonacci retracement level, I have added the rarely used 88.6% level but I doubt price will go that low. Let's see.

As with previous reports, I have drawn a green highlighted circle to denote where price went parabolic in 2010. This should act as a type of support and any move below this level should be a struggle. This coming low and the next should only be marginally lower lows and not a crash type low.

This outlook is only slightly different to that which guided me previously and importantly calls for no capitulation in price.

Let's wrap it up voodoo style with the yearly chart.

Silver Yearly Chart

Silver Yearly Chart

Just as with gold, the RSI and Stochastic indicator are trending down but nothing out of the ordinary. Both are marginally in negative territory and if there really is a long term bull market in play then these indicators should get back up into positive territory pronto.

I have drawn what I think the 2015 candle will look like - a big, positive outside reversal candle. Keep in mind, I think 2014 will close positive even if only marginally, At this stage, it is in the red but a rally shortly should see that change.

And just as with gold, the 2015 low should hit the middle Bollinger Band.

So there it is folks. Of course I don't get it right all the time, especially during tricky corrective phases, but I have no qualms stating my view. I'm not one to sit on the fence and for better or worse that is how I roll. What I have laid out here is the general roadmap of how I expect price to behave going into the final low and beyond.


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