At a minimum, we should see tests of the declining 50-day moving averages for the precious metals and their miners, as the long-awaited snapback rally is materializing this week. But the bad news for gold bugs is that virtually all of the gold and silver charts are now in established downtrends. The implications of that setup are twofold.
First, bear or corrective markets tend to feature the most explosive rallies, catching most traders out of position just when it looks like these charts will never bounce again. Ultimately, however, the rallies fail abruptly and set up the next leg lower, just as market players start to believe that a durable bottom is in. That shift in psychology helps to set up the next leg lower and thus continues the bear.
In order to truly reverse these bears, the SLV would need to soundly recapture $26 on a weekly closing basis, and GLD $148.
We could easily see an overshoot of these squeezes, perhaps up to the declining 100-day moving average, which is all the more reason to not overstay your welcome in shorts even in a bear. After the initial waterfall dating back to April, shorts would be better served standing aside here and letting perhaps a multi-day or even week affair carry on before becoming bold. You are looking for several days higher, sentiment to become more bullish, and then a key reversal day or gap-and-trap.
Also note that failure to even so much as test the 50-day moving average would be an awful sign of insufficient demand.
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In the meantime, there’s plenty of gap play here.
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