We want to pay very close attention to the rally in gold and silver right now, since a stall following such a dizzying climb could send bullion quotes into a 10% dive before most traders could react. We said here yesterday that silver in particular looks like it could use a rest; indeed, a key stock that Rick’s Picks follows closely and in which we have a long position may already be anticipating it. Specifically, Silver Wheaton (SLW) has resisted the strong upward pull of futures prices over the last two days, and for the last two weeks has acted as though there’s a ton of supply just above. Because of this, we bought some November near-the-money puts in SLW yesterday as a hedge, and if SLW continues to hover we may buy a few more. As for gold, the Comex December contract still has $30 of upside before it reaches a compelling Hidden Pivot target at 1381.70, and we expect it to be reached. But if there is any loss of momentum over the next couple of days, gold will begin to feel the pull of gravity as it has not since early July.
How will we know when bullion’s rally is about to lurch into reverse? There are two things we’ll be monitoring very closely. One is the creation of bearish “impulse legs” on charts of lesser degree. In theory, no significant price reversal can occur on the longer-term charts without a similar occurrence on the lesser charts first. Another way to look at it is that every great bull market ends, and bear market begins, with a tiny abcd downtrend on the one-minute bar chart. So far, however, the corrective downtrends in both gold and silver are consistently failing to reach their corrective ‘d’ targets. This is bullish as far as it goes, but conditions could change at any time.
Charts Trump Common Sense
The other thing we’ll be focusing on is the NYBOT Dollar Index (DXY), which yesterday came within 0.09 points of a 77.22 target we’d disseminated to subscribers the night before. The fact that it has turned higher without having quite reached the target is speculatively bullish, but it would become decisively so if the index pops to 78.07 today or tomorrow. That would create a robust “impulse leg” on the hourly chart, warning bears – of which there are perhaps too many right now – to dive for cover. Although we can think of no fundamental reason to be bullish on the dollar ourselves, we would never argue with our charts if they say the buck is about to scream. Accordingly, we’ve set a screen alert at 78.07 — and so should you, since a technical rally in the dollar is likely to bring gold and silver prices down hard. If you’re keen on following this drama in real time, or if you’re simply curious about how a tiny price peak on the Dollar Index chart could be so important, drop by the Rick’s Picks chat room. Access to it and to all other Rick’s Picks services is available via a free seven-day trial subscription available to all newcomers. [Note: DXY headed lower overnight, breaching the 77.22 support. This is bearish for the dollar going forward — and therefore presumably bullish for gold and silver. We’ll continue to monitor DXY’s vital signs nonetheless and suggest lowering the trigger price to 77.58 to signal a possible bullish turn in the dollar. It would become manifest and decisive with a print today at 77.93.]
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