Old trading wisdom was the title for the previous post “Buy Rumors, Sell Facts” played out the same day it was published on the Blog. The price of gold dropped close to 6% from the top of $1966, and the pride of silver suffered even more as it fell more than 9% from the peak of $26.
The real reason behind that strong sell-off was the news that Pfizer’s early data showed the COVID-19 vaccine is more than 90% effective, which brightened the outlook for the global economy and triggered the run from the safe-havens. Although my call in the previous post was based on the simple trading logic and the chart structure knowledge, it came true. Thank you for your support with helpful and prophetic votes and comments.
Let’s get down to update; I switched to a lower time frame of 4-hour to highlight the current consolidation in more detail.
This time gold shows a clearer structure than silver as the former broke below the counter-trend consolidation valley at $1859. This validated the current leg down then.
The former peak established at $1966 this month allowed us to build the orange declining trend channel to contour the current complex correction. The recent severe drop marked as the first minor leg (i) of the third large leg down found support in the red dashed mid-channel area as price bounced up there. It was the first leg of a minor counter-trend consolidation (chocolate ellipse) and another one we witnessed at the end of the week. This structure has already retraced up to the 38.2% Fibonacci retracement level below the round number level of $1900. The price reversed down at this double resistance.
We got the first minor move down (i), the following structure looks like a consolidation to link the last drop with an upcoming minor move down marked as (ii) within the large leg 3. The price should then cross down both the mid-channel and the valley of leg 2, located in the same area of $1848.
If we apply the AB/CD segment principle, the move (ii) would target the pink box area between $1780 where (ii) = (i) and $1750 where (ii) = 1.272 x (i). The latter is very close to the downside of the trend channel.
After leg 3 will emerge, we could consider the reversal to the upside. The invalidation for the leg (ii) is only above the former top of $1966.
Silver’s price did not trigger the invalidation point to the upside located in the counter-trend correction valley following leg 2 at $22.57. That is why I said above that gold looks clearer these days, although the current structure emerges the same way.
Again, one thing was clear as price reversed right ahead of the trendline resistance of the orange downtrend. We had already observed the true power of trends on the silver chart when the leg 2 down was rejected, although it was quite strong.
We have the same sequence of the first minor move down (i) and the following consolidation (chocolate ellipse). The former is quite deep as it retraced half of the preceding hard drop, as the spike at the end of last week was sharp. This could be enough for the second minor move down (ii) to kick off. The market could struggle to bend this diehard metal down as there is quite a long distance to the minimum target of the valley of leg 2 at $21.67 and even in the mid-channel area of $22.6. Therefore, the channel’s downside is out of our radar here, although we see it on the gold chart. To tag the bottom of leg 2, the second minor drop (ii) should run 1.272 of the first minor move down (i) as the equal distance is just not enough for that.
The invalidation point of $26 is closer on the silver chart than on the gold graph, and we should watch it closely.
INO.com Contributor, Metals
Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.