By Scott Silva
Editor, The Gold Speculator
5-22-12
Things may be looking up for gold bugs. The sellers are gone, and the
bargain hunters have returned. Is this the reversal gold bugs have been waiting
for? Or is it a short term bounce only to be followed by another leg down?
Technical analysis says we may be seeing the beginning of another powerful
upswing for the precious metals and gold and silver stocks.
Gold and silver stocks have been under pressure over the last several
weeks. But we now are seeing signs of a bullish reversal. A look at the
technical indicators for the HUI gold stock index gives us the first hint. The
indicators we will examine here are Ichimoku Kinko Hyo, candlestick analysis
and Moving Average Convergence/Divergence (MACD). Taken together, these
technical indicators provide a degree of corroborated information from which to
trade.
So let’s look what these three technical indicators are telling us about
the HUI. We can see from the daily basis chart that on May 16th, the
HUI halted its slide begun earlier this month, and has traded up in the last
several sessions. Price action on May 16th produced a doji
candlestick. The doji typically marks a reversal in an established trend. The
doji candlestick has a long shadow and a small body, which traces out the push
and pull between buyers and sellers, and reflects the fact that neither buyers
nor sellers dominated the day’s trading. We can see that the May 16th
doji in fact marked a bullish reversal at the 376.86 level. The long white
candle on May 17th and following sessions pushed the HUI up to 412
or so.
The next set of indicators to examine is Ichimoku trend and momentum.
Today, most Ichimoku indicators are bearish, but there are some bullish signs. Price
action is below the cloud, which is bearish. The projected cloud is bearish
(shaded pink) with Span A below Span B. And the Chikou Span (green trace) is
below price action and the below the cloud, which is a bearish signal.
Yesterday, price action climbed briefly above the Kijun Sen (red trace), which
is a bullish sign. The Chikou Span, the momentum indictor, has made a move up,
and could climb up to the breakout area covering the 420-470 price levels. In
this area, the Chikou Span would be above price action, which would be a strong
bullish indicator. From there, price action could break above the cloud at 444,
the projected resistance level. By then, the projected cloud would be bullish
as well.
The near term dynamic displayed by the MACD shows that the breakout
scenario may in play already. The MACD shows the HUI to be oversold, with an
index bottoming out at -20.0 on May 16th, then making a bullish
crossover on May 21st.
Aggressive traders use MACD crossover signals to buy and sell. More
conservative traders are happy to wait for the trend to develop fully, as
indicated by all five Ichimoku indicators before committing capital. There are
trading rules and strategies that combine Ichimoku with other technical indicators
that work well in volatile markets. Aggressive and conservative investors alike
can benefit from technical analysis of gold and gold silver stocks. Our
analysis of the HUI is telling us we may be seeing blue skies for gold and
silver stocks soon.
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