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Tuesday, 13 December 2011

Precious Metals Correction?

That was a decent move down yesterday, but it wasn't that encouraging for more downside. Marginal new lows on strong positive RSI divergence are generally a reversal signal and we're seeing a strong bounce so far overnight. I'm seeing a possible falling wedge on the ES 60min chart and I have declining resistance in the 1243.5 - 44 area. A reversal there would confirm the wedge, which indicates back to the recent ES high:
A couple of months ago ES and EURUSD were in tight lockstep, but it's a measure of how far they have diverged since that EURUSD almost reached the October low yesterday while ES was testing a level almost 150 points above the ES low then. EURUSD made a marginal new low yesterday and hit my target area for an interim low. This sets up a decent double-bottom and on a break of 1.355 that would indicate to 1.395.

Just to mention again, my EURUSD target comes from a spookily accurate EW analyst friend, and while I would normally just bear such a target in mind while using my own methods to find targets, he has been so very accurate in the past that I tend to use his targets on EURUSD as my primary scenario when I have one. His prediction a month ago was that the current move down was unlikely to get much below the October low with 1.31 being as low as he felt it was likely to get. EURUSD hit 1.316 yesterday and that's pretty close. You may choose to disregard my friend's target, but as I said, his track record is quite remarkable. He is expecting a wave up on EURUSD from here before EURUSD starts a fall to near parity with USD, mostly likely in January or April 2012:
The little H&S on oil is fully formed and waiting for a neckline break. I like the bearish setup here, but I'm not encouraged that oil didn't break that neckline on the equities move down yesterday. We'll see how that goes but H&S patterns do often fail at the neckline of course. On a break down the pattern target is in the 92.5 area:
I posted the triangle on gold last week with the suggestion that the triangle looked likely to break down. It has since broken down and is testing key support at the 150 DMA (daily 150 simple moving average). I have this setup as both a triangle and a sloping H&S. On a conviction break below the 150 DMA I have the triangle target at 1340, and the H&S target in the 1300 area. With those targets in mind, my eye is drawn to the strong support level in the 1310-20 area. There is also a significant support level in the 1460-80 area on the way there:
Looking at the silver chart there is some strong support there for this correction on gold happening. Since the September low the ensuing rally has formed an H&S with a target back at strong support in the 26 area. Silver completed this pattern yesterday and I'm watching for a break of the neckline. It's worth mentioning that downward moves on silver particularly can happen very fast. Some of the keener chartists among you may have also noted that a move to 26 on silver would also complete a huge H&S indicating to (cough) 2.65ish. My personal feeling is that the chances of that larger H&S playing out to target are zero, but if 26 breaks I have rising support in the 22.5 area and very strong support at the 19.5 level:
I've mixed feelings on equities for the rest of this week and we'll have to see how it goes today. The marginally lower low on positive divergence looks bullish, and EURUSD having reached my target reversal area looks bullish as well. I'm looking for the current bounce to fail at declining resistance on ES if we are to see any lower lows on equities, which even then might well be marginal again.

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