This analysis is based on a 90-day chart. Couldn't locate a Yahoo symbol to get charts for gold & silver directly, used GLD & SLV as proxies
Noticed that the gap between gold & silver performance has closed, both seem to be back in synch now. Just seemed a little strange there for a while to see SLW & gold taking off without silver.
Primary driver for rise in PM's is recent weakness in the USD; two other purely technical drivers were the solid breakouts above the 200-dma and short covering. Shorts are on the sidelines for now so I wouldn't expect any more support next week from covering activity. But USD weakness is expected to continue well into next week, this should bode well for PM's. Some interesting reading out on the Kitco site.
And what's driving down the USD? Weak economic data & loss of confidence. Go to a website called dailyfx for an in depth explanation of what's happening. In a nutshell: USD is weak due to soft economic & labor data, treasuries affected as well, 10-year note yields took sharp drop.
Thousands of algorithms are quietly munching on terabytes of data tonight as they "see" all these trend-lines being broken & deciding what automated trades to put on during the first 3-seconds of the open in the morning. Markets getting EXTREMELY sensitive to ANY kind of economic report these days. Money flowing into PM's, Yen, Euro & industrial metals like copper.
S&P still under accumulation but volume doesn't seem all that impressive when compared to past run-ups. Still, the SPY will probably continue to go up next week. Due to zero-interest rates, institutions hold very little cash for any length of time. So when I see money flowing into PM's I have to ask myself, "Gee, where's it all coming from?" Smart $$ is quietly exiting equities.
There's our big black (or red) confirmation candle, this completes the 3-candle series that began with a Doji Star -- the up-trend is broken. Upside momentum broke as well, money flow waffled & began moving sideways back on the 12th, that's when I became suspicious of this mini-rally.
Now what? First question: what would put traders back into a buying mood? Economic data released to-date says the economy either totally sucks or is just limping along, Traders know this so I think it's already kinda priced in. We saw a nice little rally here -- ($20 to $25, or 25% in about 60 days! Even selling @ $24 still gives you a gain of 20%.
TIME TO RING THE CASH REGISTER! Unless some geopolitical disaster comes up before the end of the week (I thought the Jamaican Bobsled team might rock the world by finishing in the top 15,but they just missed it at 29th place), I'm not seeing anything that might push SLW higher for now; it will be a whole new game next week after Friday's options expry.
I'm guessing there's a better than even chance we could close pretty close to $24 on Friday. The second bet
would be some sideways churning (candle spindle-tops) in the $24 - $24.75 area. No fancy analysis, just a gut feeling. Either way, with a 20-25% profit under my belt, I'd rather be a seller than a buyer at this point.
Tonight I'm looking at SLW's relative strength indicator (now nearing 80%). Many times and RSI 80% means the stock is technically over-bought; that does NOT mean that it may go down any time soon, but it IS an early warning that any existing trend may breakdown or at least be interrupted for a bit.
Let's look at a 5-yr chart: SLW's RSI hit the 80% mark only five times in the past 5 years. May, Sept. & Nov. of 2010 (during the great PM bull-run) and Aug. & Sep. 2012. In all three cases from 2010, RSI highs the existing positive trend broke, prices paused & the trend continued. By the Fall, though, the long-terms trend finally exhausted into a series of violent whipsaw actions driven largely by debt / QE issues here and in Europe.
Looking at the Fall of 2012 we see prices flat-lining shortly after the RSI hit 80%. We see a clear loss of momentum and all kinds of so-so to just plain ugly candle patterns forming -- then the bottom fell out Last Sept. we saw the RSI hit the 70% area and, once again, prices dropped.
So, this tells me high RSI's (for this stock anyway) at the very least portends some sideways movement until the up-trend either continues or breaks down altogether. A hint as to what might happen may be contained in the money flow index. High RSI's that occur during periods of strong positive money flow usually resolve into a brief sideways movement in price until the up-trend continues. High RSI's occurring during periods of flat or declining money flow seem to predict prices going down.
The current trend at an RSI near 80% has strong momentum but the money flow doesn't strike me as all that impressive when compared to past occasions when we saw aggressive inflows of new money. I'm not seeing any significant institutional participation here, I think this is strictly a knee-jerk trader-driven rally based on dollar weakness. If so, I'd expect some profit-taking very soon -- maybe right before or right after options expry.