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Time to fold gold and silver? S&P ready to resume the run up?

Commentaries & Views

It’s hard to take a week off in the gold market.

On the last Friday of September, I wrote that I was still willing to give the long side trade the benefit of the doubt even though sellers were able to prevent a breakout at $1950 on the FOMC. On Tuesday of last week, sellers broke $1900 to the downside, continuing the pattern of lower highs and lower lows. On Wednesday the August $1885 low was breached and a cascade of selling quickly ensued. In short – there were lots of signs of danger, even though hindsight is always 20/20.

Respect for stops is paramount.

What next? Gold weekly shows that the bleeding has a chance of slowing here as price gets into the long-dated support/resistance level demarcated in yellow.

Metals have been in the throes of a frustrating sideways correction dating back to this spring, the type of action that does a real number on bullish sentiment. Of course, the more bearish sentiment becomes, the more excited contrarians should become. Is the bottom in? Again, the best we can do without a crystal ball is pick a spot to enter and manage risk accordingly. My feeling is that we are nearing the end of this selloff, at least for now. Traders could try a long side trade with stops at low of day (in my opinion) with a target of $1850 to start.

Friday’s reversal candle in the gold/silver ratio is massive. Although it’s back at top of range I’ve been showing (which is one of the reasons for why I think a short-term long play in gold is viable here), daily momentum on the ratio is turning up, and a breakout is a real possibility. That would drive metals lower, likely annihilating any bullish sentiment that still lingers.

An update on the S&P futures chart I’ve been showing for months: Finally, the gap I have been pointing to (black arrow) has closed, and daily momentum looks to have bottomed as well. Traders may consider a long position with a stop at last week’s low.

Thanks and have a great week,

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