Breakdown and Critical Support Test for Gold and Silver

Apr 2, 2013: 10:19 AM CST

This morning brought a continuation of the short-term downtrends for Gold and Silver as price collapsed toward a critical target zone which now calls our attention.

Let’s take a quick, simple look at the current structure and critical levels to watch for these markets at the moment.

Gold Daily Chart:

The key focal point is $1,600 which is a “Round Number” level aligned with the midpoint or prior value area of the mid-2012 triangle range pattern.

Today’s breakdown back under $1,600 and the rising ‘flag’ trendline does put a bearish bias and breakdown signal for gold, suggesting an eventual retest of the $1,560 low of 2013 or even $1,550 which is a critical weekly reversal/pivot level.

While the daily chart has turned bearish and confirmed the short-term downtrend in motion, let’s focus on the intraday level to watch as a potential pivot.

First, note the “Three Push” multi-swing negative momentum divergence pattern from mid-March in conjunction with the rally toward the $1,620 target zone.

This is a great example of higher timeframe targeting (key inflection levels) and intraday (lower timeframe) developments that provide additional clues the daily chart can’t reveal (like the divergences here).

Today’s pre-market and opening session resulted in a breakdown under the short-term $1,596 trendline as buyers failed to defend gold at the key $1,600 short term level.

A sudden sell-swing developed which broke the market to the prior swing low (short-term target) at $1,580; it’s this level where we’ll focus our attention.

We’ll be watching for any sort of upward retracement off this level and measuring the strength of the bounce-back rally, but if gold suddenly reverses and breaks under $1,580, it would trigger the higher timeframe target toward the $1,560 to $1,550 prior and critical support lows.

The picture is similar in Silver – here’s the Daily Chart:

Both Silver and Gold are breaking under their midpoint (value area) from the mid-2012 consolidation range pattern which puts the mid-2012 lows ($26.50) back in play as potential short-term targets.

Also like gold, silver faces an important short-term level into the current $27.50 – it’s the lower boundary of the falling parallel trendline channel drawn above along with a weak horizontal price polarity level.

Unlike gold, silver does not have a short-term pivot swing low to target – it pushed to new lows not seen since July/August 2012:

While gold experienced a visual breakdown this morning, silver led the way to the downside with the breakdown gap on March 27 which resulted in a snap-back retracement or retest of the key horizontal trendline into $28.70 which set the stage for the recent ‘collapse’ or breakout impulse to the current $27.50 level.

Momentum also has been weak (making new visual lows) on the breakdown.

As always, we’re constantly assessing the probabilities of pro-trend continuation (which suggests these levels will fail as support) and short-term retracement or even aggressive reversal opportunities (which is why we focus on these levels).

The current levels will either serve as short-term ‘bounce’ catalysts for aggressive traders, or a breakdown under these levels reaffirms the short-term downtrend in motion and opens an opportunity to play for the prior lows as seen on the daily chart.

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Corey Rosenbloom, CMT
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1 Comment

One Response to “Breakdown and Critical Support Test for Gold and Silver”

  1. xautrading Says:

    I think the price of gold for this week, it will still stuck at the level of 1600, seen from the monthly trend of gold strong down trend, while the weekly trend, showing an increase of symptoms, my conclusion this week the gold price will consolidate between the range 1617 to 1540, assuming the low penetrating , likely prices will continue to slump..