HardAssetsInvestor

Written by Larry Baer  |

May 30, 2012

Larry Baer's Technicals: Monthly Charts Don't Confirm Gold & Silver's Downtrends, Offering Opportunity

Details

While both precious metals have seen prices fall, the monthly technicals say they may have been oversold.

Disclaimer: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources.

One of my most important technical indicators that I’ve developed over the years is determining whether or not a market is in a longer-term trend. This is one of my analytical techniques that overlays the traditional trending model and my King’s Cross indicators, among others. I utilize it to help me divine whether a change in trend is simply a market correction or if a market has entered a longer-term trend.

Long-term trend confirmation is similar to my traditional trending and King’s Cross trading strategies. It can be applied to any market and any time frame.

When the nine-period simple moving average crosses the 20-period simple moving average, there is a change in trend. I then count out five bars following the change in trend and look for the market’s extreme high or low. If the change in trend is to the upside and the market can close above its five-bar extreme high, it suggests that market may be in a longer-term uptrend and vice versa for down-trending markets.

SILVER & GOLD

In the short term, gold and silver may see lower prices but the longer-term picture is more unclear.

Gold and silver have yet to confirm a longer-term downtrend on their monthly charts and in my opinion they will not do so. I would keep an eye on the weekly charts to see if they qualify for longer-term downtrends or if they show King’s Cross counter-trend buy signals.

Either way, I see an opportunity to buy gold and silver at lower prices. Here’s how I reached that conclusion.

On the daily charts, gold and silver have already confirmed to me that they are in longer-term downtrends and have been moving lower for some time.

Along the way, gold has generated several traditional sell signals on the daily chart and has fallen below most support areas. As you can see on the daily chart shown below, silver (basis July contract), following a King’s Cross counter-trend sell signal, changed trends to the downside. Silver put in its five-day extreme on the third bar (May 14) after the change in trend, then closed below this extreme on March 22, confirming to me that silver was in a longer-term downtrend on the daily chart.