Looks Like A Descending Triangle In Silver

Posted by barkand on July 6, 2011 under Classic chart patterns, Commodities | Be the First to Comment

Silver prices have quieted down very much ever since the dramatic run-up in the winter and subsequent drop in the spring. It looks to us like silver is forming a descending triangle, with the base established in mid-May. If that is the case, we should expect prices to break decisively through the high $33 area sometime soon. A month ago, Tom McClellan had suggested silver could fall further based on the price action after the Hunt brothers bubble of 1980. 

Looking at a couple other technical indicators, we get mixed signals. Or maybe it is just noise. On the chart below, we have overlaid the Fibonacci retracement levels for the triangle and also included RSI. We note that the last two tags of the upper boundary of the triangle occurred at Fib retracement points. It could simply be a coincidence. You will notice one other peak within the triangle did not happen at Fib levels. And if silver prices ignore the Fibonacci retracement and continue higher over the next day or two, it will probably kill our triangle theory. 

And then there is RSI. It is currently sitting just below 50, which often generates resistance to advancing prices. On the other hand, the last tag of the lower bound of the triangle did not produce a similarly low value of RSI. But why should it have done so? A descending triangle, by definition, will have less and less downward movement as the triangle develops. So the ratio of up movement to down movement should become less extreme. We realize that some people would have a bullish interpretation of the RSI divergence with prices, but we are not buying it. 

Silver Still Overvalued Relative To Gold

Posted by barkand on May 27, 2011 under Commodities | Be the First to Comment

Silver prices have come down hard – by about 20% – during the past month. So is silver cheap here?

The short answer: No.

Silver would need to fall by another one-third from today’s levels to reach the long-term ratio of silver to gold. Of course, another way to accomplish this would be a massive run-up in gold prices relative to silver. But our guess is silver will do most of the work in this relationship.

The chart below shows us the ratio of silver prices to gold prices. When the ratio is going up, silver is becoming more expensive (valuable?) compared to gold. As we see, the ratio was somewhat stable until last autumn. Then the silver mania kicked into gear and sent the price up to near $50 per ounce.

There are two more items of interest here. First, the silver-gold ratio is now sitting right at its 20-day moving average, which is currently acting as some weak resistance. And we didn’t show it on the chart , but the move from the recent low in the ratio to this week’s top was exactly a 38.2% Fibonacci retracement.

N. American Palladium(PAL) A Possible Rebound Play

Posted by barkand on May 24, 2011 under Bollinger bands, Candlestick charts, Commodities | Be the First to Comment

The share price of North American Palladium (PAL) has been cut in half in a short time. Most of the damage has come this month. It started May near $6.50 but has been living near $3.50 recently. Yesterday, it rose to close at $3.68.

We think the conditions are good for PAL to bounce back and reclaim at some of the ground lost this month. Here’s why:

• It is possible that prices have made a bottom within the Bollinger bands after skidding along the lower band. Downward momentum has slowed. But has it reversed?  Yesterday’s “piercing pattern” gives us some optimism, although we would have preferred to see more volume.
• Many people buy PAL as a proxy for palladium.  And palladium prices have moved sideways for the last two weeks while the share price of PAL has continued falling.

We would be a cautious buyer here. A more low-risk approach would be to wait for a break above $3.80.

Dead Cat Bounce – A Textbook Example

Posted by barkand on May 13, 2011 under Candlestick charts, Classic chart patterns, Commodities | Be the First to Comment

On the MTA website recently, there was a small discussion about the exact meaning of “dead cat bounce”. Today, courtesy of the silver market, we have a good visual example.

It is not strictly necessary,  but in this case prices did retrace back to the first Fibonacci level before falling to new lows. Also, the bounce here could be described as a case of a “falling three methods” continuation pattern in candlestick terms.

Energy Prices To Find Support

Posted by barkand on March 15, 2011 under Commodities, Point and figure charts, Price trends | Be the First to Comment

Well after a short holiday, we’re back looking at energy prices.

With the developing nuclear catastrophe in Japan, every market everywhere is getting whacked. Or about to get whacked, as the US market opens in a little more than an hour from now. Even energy prices and shares of energy-related companies are getting hit.

Below is a chart of the Dow Jones US Oil + Gas Index. We have applied a 3% filter to the data, so in a sense, it is analagous to a 1×3 point-and-figure chart except this chart retains a time element.

The index has gone up almost in a straight line since last August. It only recently gave some ground along with most other markets, and will retreat more later today. The ADX indicator is also dropping from over 40, suggesting the end of the current trend.

How low can it go? After such a strong advance, the 20-period moving average often provides solid support. In this case, the 20-week MA is quickly approaching 600. That level would also represent a 50% retracement toward the three peaks registered in late 2009 and early 2010. After perhaps a brief rest, we expect energy prices and energy stocks to continue advancing.

Oil Priced In Gold

Posted by barkand on September 19, 2010 under Bollinger bands, Commodities | Be the First to Comment

This blog is re-started today with a long-term look at oil priced in gold. Here we see prices stabilizing at around .06 ounces of gold per barrel of oil, with quickly contracting Bollinger bands.

In the coming week, that long “black” candle (red on this chart) in the spring will drop out of the calculation and the bands will become even more tight. Sometime soon, we might expect a squeeze where prices will jump outside the bands and make a strong move. But in which direction?

My guess is that the oil/gold ratio will bump its head on the long-term downtrend line dating back to the middle of 2008, and then fall. Does that mean oil prices will collapse? Or that gold prices will spike higher? Or a combination of both? I don’t know. So, for those with the means to do it, the best way to play it is to be short oil and long gold.