We can see on the following 2-month charts for gold proxy GLD and silver proxy SLV how they both flashed warning signs that they were topping out last week as in addition to becoming enormously overbought with volume rising to huge levels, they both put in prominent bearish candlesticks with GLD making a massive “Hanging Man” candle on Thursday and SLV making a bearish “Gravestone Doji” / “Shooting Star” last Monday followed by a bearish “Hanging Man” candle on Thursday. These meant big trouble and that’s what manifested on Friday when both gold and silver cratered. We saw this coming earlier last week which was why an article was posted entitled Are we seeing AN INTERMEDIATE BLOWOFF TOP in silver stocks?
Just how insanely overbought SLV had become is made plain by the following 10-year chart for it where we see that it has gone vertical with the MACD indicator having flown repeatedly off the top of the chart setting record after record of overboughtness and it’s the same situation with silver itself. Many people said “It’s different this time” and it was – until it wasn’t.
Alright, so the next question is “What now?” – is the bull market over? – no, it isn’t, for as mentioned above the same forces driving this major bull market are in play and are unaffected by this shakeout. The main point to understand here is that the magnitude of Friday’s drop has rattled a lot of investors, making some think that the top is in – sentiment has taken a big hit. This means that any attempt to rally short-term is likely to be sold onto, which means that the short-term trend is down, although that said the greater part of this correction is thought to have already occurred with Friday’s drop.
If you want to know when to buy gold and gold stocks, it will probably also be when silver gets close to its parabola, since gold and silver are likely to bottom at pretty much the same time and it is considered likely that gold will bottom in the zone of strong support in the $4400 - $4500 zone shown on the following 1-year chart...
With silver (and SLV) what is expected to occur is a more measured decline probably lasting for about 2 weeks back towards the parabolic uptrends shown on their respective 1-year charts below, above which an intermediate base is then expected to form that will lead to renewed advance and the recovery is likely to be swift. Here it should be noted that the scenario depicted is conjecture on my part and will almost certainly require adjustment going forward, but at this juncture it is considered to be the most likely.
Lastly, in what was something of a tragi-comic irony, the copper breakout that we had been expecting for weeks finally occurred last Thursday, and it promptly got whacked back down again into pattern the next day thanks to gold and silver cratering. Overall though, copper’s chart looks very positive with it continuing to accelerate to the upside so that once gold and silver are done correcting and start marching higher again, copper should join them.
With respect to platinum, there is strong support in the $2000 area that it dropped back to intraday on Friday and if that fails it there is stronger support in the $1700 area.
The conclusion to all this is that if you didn’t take profits last week, you are probably better off riding out any further short-term losses, which are not likely to be great and in addition the coming intermediate low will probably turn out to be a great place to buy or add to positions.
End of article.
Posted at 5.10 pm EST on 1st February 26.