Yesterday’s death cross in gold gave traders an ominous warning that more pain may still be in store for the precious metal. However, there is a leading indicator that predicted the dramatic downside pressure witnessed in the precious metals that called for lower prices long before the death cross was on anyone’s radar, the technical study is known as an Ichimoku Cloud and it is calling for even more bearish price action in the coming days and weeks.
The Ichimoku Cloud (Ichimoku Kinko Hyo) is a Japanese-developed indicator that condenses trend, momentum, and support/resistance into a single view using five plotted lines: the Tenkan-sen (9-period conversion line), Kijun-sen (26-period base line), Senkou Span A and B (leading spans projected 26 periods forward, which together form the "cloud" or Kumo), and the Chikou Span (the current close plotted 26 periods back). Price trading above the cloud signals a bullish bias, below signals bearish, and price inside the cloud suggests consolidation or trend indecision; cloud thickness reflects the strength of that support/resistance zone, while a Tenkan/Kijun crossover acts similarly to a fast/slow moving-average crossover for timing entries.
This comprehensive eastern study correctly identified the switch in the precious metals from a bullish to a bearish environment months ago. In silver futures pricing fell beneath the clouds and the clouds had shifted to red (bearish) from green (bullish) back on March 13th when silver futures were still above $80 per troy ounce. The same thing occurred in gold futures only six days later when futures were trading at around $4,655.
Since then both gold and silver have remained below their cloud formations only challenging them briefly in May before falling beneath them again where they remain to this day. Even more disturbing is both precious metals have been beneath the base and conversion lines for the past week and the lagging span has been below pricing since May. Going of this one technical indicator that attempts to tell a trader all they need to know regarding direction, momentum, and strength of trend both metals are not yet in the clear and storm clouds remain overhead.
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