The Coherent, The Foremost, And The Remarkable

The previous week was quite rich in important events. Silver rallied significantly on Wednesday and mining stocks underperformed significantly on Thursday. Gold declined significantly after moving to the previous high, but without a breakdown to new 2018 lows the situation remains tense, especially that the USD Index is fighting to break above an important support / resistance line. These signals may seem random, but if you’ve seen similar cases many times before, it all becomes coherent. Especially, when it’s confirmed by very long-term charts of utmost importance and by little-known but remarkably effective techniques. In today’s analysis, we discuss all of the above.

There are quite a few things that we want to cover today: the short-term issues are important as that’s where the most changes are, and the long-term issues are critical and since we didn’t provide an update on some of them in the recent past, we want to catch up. On top of the above, there is something that’s extremely interesting and likely very useful that we just have to share with you.

It took some time to prepare today’s analysis, but while we can’t promise certainty regarding future price movement, we can and do promise to give you our absolute best in our articles. And we deliver. With all the above in mind, we just couldn’t not let you know about all these important issues.

As a consequence, today’s analysis is rather big, so if you’re short on time, you may want to scroll down to the Summary section. Naturally, if you have time, we hope that you’ll enjoy reading today’s analysis in its entirety.

Let’s start with the most recent price changes (charts courtesy of http://stockcharts.com).

The Coherent

The USD Index moved above the declining resistance lines and closed above it for 3 consecutive days. The breakout is therefore confirmed. We can’t say the same about the USD’s relation to the other resistance line – it hasn’t closed above it so far. So, overall, based on the above chart, the outlook for the USD improved, but just a little.

The medium-term declining support / resistance line is providing resistance so far and our precious comments on it remain up-to-date:

To be more precise: the declining support / resistance line is currently at about 90.20. Today’s pre-market high according to finance.yahoo.com is 90.24 and the current price at the moment of writing these words is 90.05. The USD Index is now fighting for a breakout. Still, if we see one, we won’t view the outlook as dramatically improved until the breakout is verified – preferably by a close above the previous February 2018 high (90.45).

There was already a failed attempt to move above this line, so we are skeptical toward a small breakout above it. After all, if the previous small breakout was followed by invalidation several days ago, it becomes unclear if the next breakout will be successful. We might see another small move lower or we might see a breakout right away. The latter is more probable, but based on the previous failed breakout, we wouldn’t dismiss something similar to it just yet. A confirmed breakout above 90.5 (approximation of the mentioned 90.45) will be a very good sign that the breakout above the support/resistance line is going to hold and that the final bottom is definitely in for the USD Index.

The mentioned support / resistance line is not willing to give up without a fight and this may be a blessing for us. If the USD Index moves to 89.11 or so (the highest of the nearby long-term support levels), we might see yet another very bearish confirmation, which would make the overall outlook for the short term even more bearish. In consequence, we might increase the speculative short position even further. Again, that is a big “if” at this moment and we’ll keep monitoring the market and report to you accordingly.

Overall, the short-term picture for the USD is tense, but it improved based on Friday’s closing prices as one of USD’s short-term breakouts was confirmed.

Gold barely moved yesterday, but it’s notable that the direction of the move was down and that the volume was very low. Both factors are important because of other markets. Let’s start with the latter.

The low volume in gold was confirmed by low volume in silver, so it’s something that’s worth investigating. Upon closer inspection, it occurred that the very low-volume days in silver (when confirmed by analogous price-volume action in gold) after days of rather regular volume were seen in quite similar situations.

In September 2017 it was seen twice. In one situation, silver traded higher for a day only to decline on the very next day. The second time was followed by an immediate intraday rally that was then followed by a quick decline. Shortly thereafter silver bottomed. The third time was seen right before a 40+ cent daily jump that was followed by a consolidation and then lower prices. The fourth time was seen before a move lower that was the final low of the month. A sizable rally followed. The fifth time was seen in January 2018, when silver was just before the daily decline that was followed by a 40+ cent daily upswing.

So, in 5 out of 5 cases, similarly low volume during a daily decline meant that we’d see a trick move very soon that would be followed by a bigger and much more important move in the opposite direction. In 4 out of 5 cases, however, it was followed by a fake downswing either immediately (last 3 cases) or in a few days (the second case). Only the first case was followed by an immediate upswing.

What does the above tell us? That whatever price swing we see on Monday, could be fake. It’s not 100% certain that it will be fake, but we should not trust it blindly. If we see a daily rally, then it could be the final chance to add to the short positions. If the move is to the downside, then we may consider limiting our exposure here.