Exhausted Bears In Oversold Market

Our nearest example is of course the chaotic results of Italian election, but the anti-euro and austerity group are getting louder each day. One could only imagine what the outcome would be if the German public loses patience and confidence in the single currency.

Pre jobless claims data, gold was already in retreat and moved lower. The report we posted yesterday highlighted the short term support levels at $ 1584.86 (38.2), $ 1580.39 (50%) and $ 1575.91 (61.8). Prices did retest, and found support at a low of $ 1576.00 before crawling higher to $ 1585.7 area. We also warned that prices may further consolidate after its latest attempt to break $ 1600.00.

The positive takeaway here is that we should have witnessed a bigger drop in prices after a better than expected jobless claim report. Instead, prices reclaimed some of the losses, and this may be proof that the bears are somewhat exhausted in the oversold market. A test of support and base building in the next few days would be supportive on gold in order to mount another attempt to take out $ 1600.00.

Long gold at $ 1580 if given and target $ 1595 with a stop loss at $ 1577.50 – Stop Loss triggered.
Long gold at $ 1592 (2 contracts) target $ 1598 and $ 1604 with a stop loss at $ 1587.50

Resistance: $ 1604, $ 1625 (50%), $ 1639 (50 DMA), $ 1650, $ 1686, $ 1697 (previous high) Support: $ 1584.86, $ 1580.39, $ 1561.4, $1555, $ 1545, $ 1525, $ 1522 (2012 low)

Silver took the heavier punishment as prices break to a low of $ 28.55 after the positive jobless claim report. Compared to 2 days ago, prices reached a high of $ 29.35 and have been consolidating at lower numbers. The short term technical picture is rather bearish as the MACD crossed lower into the negative zone and the lack of volume did not help. We addressed the issue on the lack of follow through buying as the main causation that prices headed lower. However, we felt that silver is retesting for quality support and the base building continues.

The daily chart shows that more consolidation ahead as the stochastic fast line crossed lower and the MACD is still rolling in the negative zone. Volume has been rather muted but the Bollinger band is getting tighter and that indicate a breakout is imminent.

We advise caution on any silver trade and will only get more bullish if $ 29.50 is given.

Long silver $ 29.15 to target $ 29.50 – stop loss added at $ 28.85 (Stop loss triggered)
Long silver at $ 29.40 target $ 29.80 with a stop loss at $ 29.15
Resistance: $ 29.50, $ 29.74 (38.2%), $ 30.19 (50%) Support: $ 28.55, $ 28.33, $ 27.93, $ 27.50