Daily Charting Silver and Gold SLV GLD at New Highs

Feb 28, 2011: 12:05 PM CST

With QE2, Libya/riot concerns, and the prevailing up-trends all helping push leading precious metals funds GLD (Gold ETF) and SLV (Silver ETF) to their upper resistance breaking point, let’s take a look at the current daily chart structure, note key levels to watch, and see what the charts say at the moment.

First, let’s start with the leader – Silver (SLV):

Compare the two charts and – if you haven’t been paying attention – you’ll be surprised at the clear outperformance of Silver over Gold.

We’re bombarded with commercials on TV telling us that “NOW is the time to buy gold” but perhaps they should shift their focus to silver!

Joking aside, the Silver ETF – and Silver prices – just bounded out to new recovery highs this morning.  As I write this, Silver futures are trading just shy of the $34 level and as you can see, the SLV ETF is flirting with $33 per share.

A look back at the chart shows the rally began in earnest after the Jackson Hole Bernanke speech on August 27th (refer to my prior post on the inflation since this period).

A Three-Push bearish pattern formed – complete with negative divergence – going into 2011 which gave-way to a breakdown of the 20 EMA (a ‘protect profits’ sell signal) and then an “ABC” three-step decline that took price under the rising 50d EMA and back to the simple target price support at $26.00.

Bulls stepped in here and silver rallied almost non-stop through February to the recent new-recovery peak.

Simple methods often are more effective than complex methods, so watch the $30 per share breakout level as the key defining level between bulls (above) and bears/cautious (under).

Like we’ll see in gold, volume and momentum increased on the February rally – a bullish sign.

Now let’s turn to the ‘lesser’ performing metal – Gold via GLD:

Gold also began its rally after the August 27th Jackson Hole “We will do anything to stimulate the economy” speech and gold formed a similar “Three Push” bear pattern which also took it under the 20d then 50d EMAs.

Gold actually pierced the $129 prior price support level to bottom in late January at $128 before buyers again stepped in and the situations from Egypt and Libya helped spur higher prices in gold in part due to a protection/uncertainty trade.

Unlike Silver, Gold has yet to make a new recovery high though it stands close to doing so.

As such, watch the $138 resistance and the prior price peaks at the $139.50 level.

Traders will likely capitalize on a breakthrough to new highs in gold, particularly above $140 in the ETF and $1,430 in the futures contract.

It’s generally unwise to play “Pick a Top” in moves as powerful as these, unless we see breakdown signals like we saw in January – and as the chart shows, those breakdown signals only were good for a quick move to lower support only – not a reversal.

Keep watching these levels closely as traders push prices around at these key inflection points.

Corey Rosenbloom, CMT
Afraid to Trade.com

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4 Comments

4 Responses to “Daily Charting Silver and Gold SLV GLD at New Highs”

  1. Brian Says:

    Looks like silver experienced an intra-day head and shoulders. What a wild day!

  2. Corey Rosenbloom, CMT Says:

    That's true! The end-of-day rally that formed in stocks, SLV, GLD, etc formed off positive divergences – and in the case of the SPY, pos dual divergences into higher timeframe EMA support and price support as I noted in a later post from Friday's levels. Lots of lessons to learn today!

  3. Mikedenk Says:

    Stupid question…when you say above that “Traders will likely capitalize on a breakthrough to new highs in gold, particularly above $140 in the ETF and $1,430 in the futures contract.” what exactly do you mean…that they will sell their positions at those levels?

  4. Corey Rosenbloom, CMT Says:

    Nah – not a stupid question.

    Traders often use simple levels as stop-losses, namely new highs if they want to play the 'call the top' game and short into resistance. So, when price breaks to new highs, they're forced to decide “do I take my stop now or do I wait?” and if lots of traders make the same decision at the same time, it can create a quick pop or feedback loop wherein new buyers are buying which forces old short-sellers to buy to cover.