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Aaron Basile
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Contrarian Investor, Commodities Speculator, Technical Trader.
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Aaron Basile
  • Silver, Gold, S&P 500, Euro 2 comments
    Mar 4, 2011 9:54 PM | about stocks: SLV, GLD, SPY, FXE, UUP

    Silver made yet again another post hunt brothers high as it closed at $35.50 up nearly 4% from yesterday. SLV followed, also having gains of almost 4% and closed at $34.69 – a fresh all time high – with volume above 38 million. I’ve said over the last week or two that we have been overextended and that I expect a pullback before moving higher. Needless to say the price has not slowed down at all and continues to advance at least for the time being.

    The trendline that we talked about last time is still intact and the likely support level for a pullback is moving higher and higher. I said on Tuesday that $32 would be the lowest silver touches in the next couple of weeks, but I am revising that to at least $33-$34 based on the movement of the 20 Day MA.

    SLV’s trendline is actually steeper than silver’s and appears to have added a permanent increase in daily volume. Spotting the top in this ETF can be acheived by watching the closing price when it is above the upper bollinger band line. This simple technique has been correct 4 out of 4 times in the last 3 months alone.

    Last week I predicted a reversal on Tuesday – I am predicting the same thing for next week. I think that silver and/or SLV will gap higher and close above the upper bollinger band line on Monday, perhaps testing $36 intraday, then will gap higher again on Tuesday and close lower than Monday’s open which would initiate a pullback.

    Gold finished with a piercing line candle after testing $1410 to the downside during yesterday’s and today’s trading sessions. A piercing line is a bullish reversal and I believe that should signal a bullish beginning to trading next week. Other than that, nothing new has taken place in gold so far and the trendline remains intact for now. Typically when silver reverses, gold will go with it so my sentiment here is the same as silver.

    Last Tuesday I showed you the bearish engulfing candlestick on the S&P index. I am not surprised that this trend has not broken yet despite the reversal as this chart is one of the strongest in the global markets. However, it does appear to be close to support and any bad news that comes out while it’s being tested can break the trend in this bear market rally.

    I’ve been discussing the potential head and shoulders pattern in the euro for a month or two now, but that chart pattern has not played out mainly due to speculation that the ECB will hike interest rates by 25 bp. I think 25 bp is a relatively small hike but the sentiment is enough to make the market flood into the euro. However, I think that the euro will fall anyway as bailouts will supercede reserve hikes. There is also a rising wedge pattern that if it’s plays out, will reverse sharply and break through $138, starting a correction. Despite this, I’m not as sold on the chart as I am the fundamentals and I’m certain that it will take headline news to initiate a reversal here.

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Comments (2)
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  • David Urban
    , contributor
    Comments (1036) | Send Message
    Great post and I agree with your sentiments.


    When do you think we may see a top technically?
    6 Mar 2011, 04:20 AM Reply Like
  • Aaron Basile
    , contributor
    Comments (92) | Send Message
    Author’s reply » For silver, I think whenever it closes above that upper bollinger band line is a good indicator of a short term top. I think gold will have the sane short term tops as silver so I'd be using silver as a proxy for the both of them.


    For the S&P, it's impossible to call a top using technicals. I tried it in the fall and the logic is tied to QE in this market so the only logical top I would call would be when QE II ends. In my opinion the euro should be topping soon, Portugal is running out of time and I don't think Trichet's big 25 bp rate hike is going to make bigger headlines once the dominos in Portugal fall. I like $28 Jan 12 calls on UUP as a way to play this one.
    6 Mar 2011, 12:58 PM Reply Like
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