Prices Soared Today on Moving Average Breakout

July 13, 2011 Justin Technical Analysis

The commodity rally was off and running this morning as silver broke out from near-term resistance and soared by more than $2 per ounce to $38.30 by mid-day. The advance originated from right on the 50 day moving average where momentum accelerated and trading activity picked up rapidly. The explosive move to the upside in the spot price of silver came as gold continued to extend an impressive advance that began back on July 1st. The flurry of activity today came as the Fed hinted that further economic stimulus could soon be injected into the market. The dollar slipped by as much as 1% against nearly all major currencies including the troubled Euro which helped to vault commodity prices higher.

Precious metals were strong across the board as gold broke out to a new record high after clearing out the last major area of overhead resistance dating back to the April 30th peak. Gold reached a peak of $1588 per ounce early this morning before retreating slightly in afternoon trading. Analysts who follow commodities and precious metals predicted that eventually silver would have to make a significant move for the recent rally to continue and today it did so in a big way.

Where are prices headed from here?

While gold has now cleared a path to new highs, there is some significant resistance remaining before silver can attempt to challenge the highs put in place during the last week of April. Key short term levels include the area between $38.50 and $38.80 per ounce which represents the closing and intraday highs from May 24th, 25th, and 30th along with the location of the 50 day moving average at the time. It would not be unusual to see some form of consolidation or slight retracement after such a considerable move. If the momentum from the current move will allow this area of resistance can be overcome, the last remaining technical obstacle before a test of the April high would become likely is the $39.25 level where the initial rally off of the low stalled.

For traders looking to initiate a new long position, the area of the 50 day moving average should now act as key support and any pullback towards this level could represent a potential entry point. As always, a carefully placed protective stop somewhere in the area of logical support is highly recommended. More conservative investors may want to wait for further confirmation of what currently appears to be the development of a new uptrend. In that case, waiting for a breakout and a close above $39.25 per ounce might represent a slightly more conservative trading strategy.

Remember that you don’t have to be an active trader to participate in the uptrend in prices. Investment options such as coins or bullion can be a great way to capture growth and price appreciation in precious metals for those who are interested in a longer holding period.

Metals Advance and Continue to Show Strength

June 9, 2011 Justin Technical Analysis

Commodities moved higher and today and silver prices were on the advance after several days of trading in a tight range. Traders and investors appear to be encouraged by an improving technical picture and a series of higher lows on the daily chart.

Several respected financial publications have come forward in recent weeks making a strong case for the fundamentals in silver and labeling the recent correction as an excellent opportunity for investors considering building a long-term position in silver. This value theme seems to be catching on as commodity traders have reached the conclusion that the May selloff was driven primarily by a squeeze on margins that forced silver buyers to liquidate long positions they had no intention of selling.

While it is necessary to understand what is driving market sentiment, filtering out the headlines and news reports to focus on the technical picture usually proves to be a more effective trading strategy. With that being said, price action seems to be indicating that the commodities are again ready to attempt another rally. The market held up at the 200 day moving average and has been supported by a rising trend line for nearly a month (dating back to the May 11th low). The 50 day moving average has proven to be an area of considerable resistance as about six attempts to breach it were turned back during the last week in May.

It is important to note that when prices backed away from resistance, they didn’t do so with any authority and stayed within a few dollars of the resistance area. We are now coming to the point where a nice ascending triangle or pennant type formation has emerged. This time however, relative strength has turned upward and the market seems poised to once again make a run at the 50 day moving average.

A breakout to the upside here would leave a considerable amount of room to the upside before any important resistance would come into play.

Entering a long on a close above the 50 day moving average with a stop just below today’s low would provide a very favorable trade from a risk/reward standpoint.

Gold also continues to show strength as well but the silver trade looks more attractive at this point given the amount of room between current levels and the next area of important resistance. Gold on the other hand is already much closer to testing the April high.

For now, one thing is clear; the bull market in commodities is clearly intact and the overall uptrend in precious metals remains in place. As always, carefully selected entry points and well-placed protective stops will be the key to achieving profitable trades.

Traders and investors concerned about margin may want to consider using the ProShares Ultra Silver Fund (AGQ) as a trading vehicle. It provides 200% of the daily performance of silver bullion and as long as you purchase your shares with cash, you will not need to be concerned with CME raising margin requirements. As an added bonus, this is an optionable ticker symbol which can allow for income based strategies such as selling covered calls or straight option purchases to avoid tying up large amounts of trading capital.

Silver Prices See Steep Decline

June 2, 2011 Justin Technical Analysis

The silver spot price was off by nearly $1.50 per ounce in a continuation of a sell-off that began yesterday. The metal made another attempt at breaking above the 50 day moving average early in the trading session Wednesday but quickly ran into resistance and retreated back below that key level. Selling pressure intensified on the failure and the decline saw prices drop below the lows of the past several days as traders saw tight stops get taken out on the acceleration of the retreat.

The next major level of support for silver doesn’t come in until around the $33.90 level which is the 200 day moving average and also happens to be the closing low from March 15th where the silver market began its steep ascent that peaked back in April.

As we’ve discussed here on numerous occasions, sometimes the best position to take in the commodities market is to sit on the sidelines. Right now, the price is stuck approximately midway between a major area of support and a formidable level of resistance with quite a bit of distance between the current price and either of the two. The theme to remember for the next day or two is that boredom does not constitute a reason to enter a trade. As of right now, there are no attractive trade setups on the long or short side that offer a high probability of success or a favorable risk/reward ratio.

There will likely be several headlines in the news media today claiming that the bull market in commodities is over. Keep in mind that although we are experiencing a pullback, from a technical standpoint both gold and silver remain in an uptrend. Until either of the two breakdown below major support, no reversal of the overall trend has occurred.

Right now, the chart on gold continues to look considerably better than silver and as of this morning, gold has managed to hold on a retest of the breakout above the May 10th high. As long as gold manages to close above that area of support, the upside will remain favored.

The Euro managed to post a gain against the dollar overnight and remains above both the 50 day and 200 day moving average. A declining dollar will help to provide some support for commodity prices. As long as the dollar doesn’t gain any momentum to the upside, the chances of a major trend reversal in commodities will likely be held in check.

Again, no trade opportunities are looking spectacular in commodities right now but if you feel compelled to take a shot at something, a play on gold bouncing off the $1525 support area might give you a small window of opportunity. Set a tight stop on a close below support would be an absolute must if you decide to take the chance. Watch out for the Fibonacci retracement levels of the move from $1544.50 to $1519.65 for possible resistance. This may be something to experiment with in a practice account.

Be sure to keep some trading capital available for bigger opportunities in the coming days. Once a solid directional bias can be established, there will be an opportunity for some profitable commodity trades.