Updated Weekly View of Targets for Silver

Nov 10, 2009: 11:28 AM CST

Since my last post on Silver Prices on October 5th, Silver prices have achieved the $18.00 per ounce price target and have hovered underneath that resistance level since then.  Let’s take a quick look at silver prices and make a note as to how silver is failing to match the recent highs in gold.

Look back to my prior October 5th post entitled “Advanced Fibonacci Confluence Projection in SLV Silver ETF” not only to see the prior analysis which targeted $18.00 as a key level to play for and then find potential resistance, but also for the dominant confluence Fibonacci Projections that led to that level (a brief lesson in advanced Fibonacci methods).

I wrote, “All four Fibonacci tools reveal confluence at the $18.00 per share level, which is above price currently.  This makes it both a potential “scalp” target to play for, and also a possible low-risk, high probability short-sell trade if this level does hold as “Confluence Resistance”.”

Silver has yet to overcome the $18.00 level, so any break above this zone would be very significant and very bullish both for Silver and Gold.

A slight negative momentum divergence has formed at the $18.00 level, which is a bearish non-confirmation of the higher prices at potential resistance.

Given that prices have ‘bumped up’ against this level over the last few weeks, this level could be ripe for the breaking which would lead to long (buy) entry opportunities.  Otherwise, if this level continues to hold as resistance, it would be a potential bearish omen for both silver and gold.  Thus we need to watch it closely in the coming weeks.

I mentioned that Silver was not ‘keeping pace’ with Gold prices, so let’s see a simple chart of gold and how Silver remains well-below its early 2008 peak while gold has soared to new price highs above $1,100.

Gold is well-above its $1,000 peak in 2008 and early 2009, though it also is forming a slight negative momentum divergence.

Rather than analyze gold here (I chart monthly, weekly, and daily analysis on gold for subscribers to the Weekly Intermarket Membership service), I wanted to compare gold prices to silver, and highlight the interesting non-confirmation.

I think this is in part due to gold’s status as a ‘reserve currency’ amid inflation fears and a falling US Dollar, which isn’t necessarily the case with Silver as both a precious and industrial metal.

Let’s keep watching to see if silver prices can breach $18.00 per ounce and how that development would play out for the short-term future of both silver and gold.

Corey Rosenbloom, CMT
Afraid to Trade.com

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New SP500 Highs Forecast by Fifth Sprung Bear Trap

Nov 9, 2009: 11:28 AM CST

Well, folks, the bulls have done it again – it looks like buyers have sprung an amazing fifth Bear Trap in the last few months that – if recent history repeats – will lead to another new high in the S&P 500.

Let’s take a look at the prior four traps that led to new highs:

What I’m showing is the daily S&P 500 from early June, 2009.

The highlighted regions represent the unyielding price rise (almost literally straight up for 8 or 9 days at a time) that came directly after a classic breaking of support via the 20 (or 50) period exponential moving average.

Generally, a break in a moving average triggers sell orders in the expectation that support is broken.

Stop-losses are placed above the entry (usually back above the average) and any sort of upward movement triggers a vicious cycle where stop-losses become “buy to cover” orders, further driving prices higher with buying pressure.

A Bear Trap is thus sprung when a valid or classic sell signal is generated and then price moves upwards into the ‘pocket’ of stop-losses from the short-sellers.  To be a bear trap, a valid sell signal has to occur.

1.  The Head and Shoulders Pattern neckline was broken, in addition to price breaking under the 200 day SMA, generating a very powerful sell signal… that led to an even MORE powerful rally when the signal failed.

2.  A break of the 20 day EMA after a strong selling bar (down-day) triggered entry… and as price moved higher back above the 20 EMA, a flood of stop-losses helped drive the index higher four days in a row.

3.  Using the exact same logic as before, but this time the “Melt-Up” avalanche yielded almost 9 up-days in a row with only a one-day doji pause.

4.  This time price broke solidly on another strong selling bar under the 20 EMA, but technically supported off the confluence of the 50 day EMA and the lower Bollinger.  Still, the rise back above the 20 EMA coincided with another (almost) 9 day price rise with only a minor pause.

5.  It looks like it’s happening again, in that a break of both the 20 and 50 day EMA triggered in more short-sellers… and now we’re having their stop-losses taken out yet again which – if history since July is any guide – will lead to a new price high in the S&P 500.

Take a moment to read my prior post entitled, “A Look at the 12 Most Recent Failed Sell-Signals in the S&P 500” for additional, detailed insights.

There was a similar post I wrote entitled “Recent Failed Sell Signals and Short Squeezes in the SPY” which is a prior discussion on this concept.

Also, this post is almost identical to my ‘prediction post’ of the same logic that forecast the most recent price highs – “If History Repeats, Will it Mean New Highs for S&P 500?

Be aware of the current “character” or behavior of the market and realize the nuances like this that can help prevent losses or translate into gains.

Corey Rosenbloom, CMT
Afraid to Trade.com

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UNG Natural Gas Update for November 7

Nov 7, 2009: 10:34 PM CST

I wanted to do an update post on the infamous Natural Gas fund UNG, now that it has (almost) completed a test of the prior lows as mentioned in my prior post entitled, “A Weekly and Daily Chart View of UNG on October 28th.

Let’s see the daily chart spanning back to the beginning of 2009… and witness the stellar drop from $25 per share to $9.

In the prior post on October 28th, I remarked:

“If the prior trend continues, then we will be looking for a price move down to test $9.50 or $9.00 in the next few weeks – provided that the $12.00 level holds as it seems to be doing as resistance.”

The $12 level did indeed hold and price did fall to close Friday just a hair above $9.50 and could test the September lows at $9.00 to try for a ‘double bottom”… or worse yet a new price low.

Beyond the price pullback to the $9.50 level, I wanted to share a lesson about the arc failure pattern in August.

Even without me drawing the arc, it is clear that price was attempting to form a “Rounded Reversal” or “arc” pattern formation (also called a “Saucer” or “Scallop”).  Generally, these are bullish reversal patterns that form near the lows of a major price move.

In general, it’s impossible to call the exact bottom of a rounded reversal pattern, but more than not they do lead to trend reversals.

However, when they fail, they can fail very hard, as the example above in UNG shows us.

UNG began to form a rising arc, looking like the pattern was complete in June and August 2009… but when price broke beneath the arc, a down-move was sharply accelerated by this pattern failure.

It’s one of many examples where a common pattern forms and when the pattern fails, throwing the traders who expected a reversal off balance, it often leads to a swift, sudden and often powerful move in the OPPOSITE direction than is expected… in part due to stop-losses being triggered.

I think this is an excellent example to reference for your studies on a failed “Rounded Reversal” or arc formation… and how powerful price moves can occur at these failures.

To see a successful example of the “Rounded Reversal” leading to a trend reversal in Crude Oil, see any of the following posts in chronological order:

December 30, 2008:  Volume Surging in USO and DXO Oil Funds

January 20, 2009:  Possible Reversal Up in USO Oil Fund and Crude Oil

February 3, 2009:  Rounded Reversal Taking Shape in Crude Oil

March 21, 2009:  A Quick Look at Crude Oil and the US Dollar Index (where I called a target for Crude Oil to be at least $70)

The Rounded Reversal is one of my favorite patterns, as it is often very easy to spot and trade.  However, there is no pattern that works 100%, and in the event that a popular pattern fails, it can leave you an even better opportunity to trade in the opposite if you are aggressive and nimble enough to do so.

Let’s see if price can form a double bottom on a positive momentum divergence… or if the pervasive downtrend will crack prices to yet another new low.

Corey Rosenbloom, CMT
Afraid to Trade.com

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Goldman Sachs GS Threatens to form Cradle Sell Signal

Nov 6, 2009: 1:50 PM CST

I’ve been watching Goldman Sachs (GS) closely as a barometer for financial stocks and thus the broader market for some time now, and the stock faces a critical area to overcome to continue on its upward trajectory.

Let’s take a look at Goldman Sachs’ daily chart to note the overhead EMA resistance that is bearing down to form a potential Bearish Cradle Sell Signal… and then temper that bearishness with a look at the Weekly Chart.

Just doing quick commentary here, Goldman Sachs (GS) is underneath both the 20 and 50 day EMA and has formed a lower swing high, which is the first steps in beginning an official new downtrend.  We’re not quite there yet, as the EMA structure is still positive, and a single lower low does not a trend reversal make.

But Goldman has to prove itself and claw its way back above these EMAs, or else a Cradle Sell signal will trigger and these EMAs could hold as overhead resistance, locking in a lower swing high and further deteriorating the upward movement.

A Cradle Sell Signal forms when the 20 period EMA crosses under the 50 EMA, as  price rallies up into this “confluence crossover zone” of the EMAs, forming a potential “dual-wall” of overhead resistance.  A doji or some other reversal candle would be the official ‘sell short’ signal if these EMAs cross.

If price stays low, it looks like the EMAs will crossover bearishly at the $175 level, so let’s all watch that very closely for clues as to the potential pathway of Goldman for the future… and perhaps the XLF (Financial ETF)… and by proxy the general market.

But wait, there’s more!

If the daily chart looks like Goldman Sachs is about to fall into the abyss… the weekly chart is showing a nice ‘go long’ confluence moving average buy signal.  What?  Let’s take a look.

The 20 week EMA rests at $167 and the 200 week simple moving average rests at $164, forming a loose confluence zone at the $165 level as expected (and potential) support.

For now, and if Goldman closes to end the weekly candle to where it is now, then we would have a doji that has bounced off confluence support – a buy signal.

That’s the simple analysis and it throws a monkey wrench into the plans and hopes of the bears/sellers.

Additional analysis shows a negative volume and momentum divergence on the weekly chart for almost the whole duration of the rally in 2009 – that’s a bearish non-confirmation of higher prices and tilts the odds slightly to the bearish camp.

So we have resistance on the daily chart at $175 and support on the weekly chart at $165.

This is similar to the situation I highlighted occurred for IBM in my July 24th post:

Daily and Weekly Conflicting Opportunities in IBM.”

I then followed-up on August 24th’s:

Updated Post on IBM Shows Why Multiple Timeframe Analysis is Critical.

The Weekly Bullish Signal in IBM overpowered the Daily Sell Signal in that example.

I also highlighted a similar pattern on RIMM in the June 30th post:

Bullish or Bearish on RIMM?  Depends on Your Timeframe.

Like IBM, RIMM also took the bullish cue from its weekly chart, rallying to a new high in September… before collapsing back to $60.

Will it happen again in Goldman Sachs?

Watch $175 for a bullish breakout and $165 for a bearish breakdown to see.

Corey Rosenbloom, CMT
Afraid to Trade.com

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Updating Gold’s Expanding Daily Arc

Nov 5, 2009: 10:32 PM CST

I wanted to update you on the continuing arc in gold from the prior post “Two Views of the Angles of Ascent in Gold” which was showing a steeply rising parabolic formation.

Here is the current “pure price arc” in gold’s daily chart:

From the last update, gold has bounced strongly off the arc updated from prior post.  Its angle of ascent is still climbing higher, which can be measured by drawing trendlines under each new swing low and noting the angle that each trendline – connecting two swing lows – creates.

See the prior “Angle of Ascent” update contained the recent rising angle measures for these trendlines.

In general, commodities can have a higher tendency to form these ‘parabolic moves’ than stocks because parabolic moves in commodities are generally driven by scarcity or fear (think of the 2008 run-up in crude oil – and the “end of oil” thesis that circulated) , while parabolic moves in stocks are generally driven by greed (“I have to buy now at any price!”).

Still, the analysis, and expected benefit from watching this trendline comes from two factors:

1.  Watch for price to bounce/rally off tests of the lower ascending arc, as occurred recently

2.  Watch for a breakdown of price through the arc to hint that a deeper than normal retracement might be ahead

Ascending or parabolic moves cannot continue forever, and – to an extent – the larger the rise… the harder the fall.

Keep this on your trading and analysis radar!

For current Elliott Wave counts on gold from Robert Prechter’s Elliott Wave International, sign up for their free-week (access their analysis and forecasting reports for free) which ends November 11th.

Corey Rosenbloom, CMT
Afraid to Trade.com

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