The following information is a guideline (trading plan) and should not be treated as financial advice. Not advice but banter and active in sharing trade ideas via twitter @sugardaddyFED
Monday sell off was temporary and shorts quickly covered their positions on Tuesday after severe weakness in the US dollar index caught the scent. We find it rather entertaining to see traders on Twitter making strong comments that this range trading and whipsawing action was down to unfair algo traders. Price congestion in this area indicates a few scenarios that we have already presented. Gold continues to mark the symbol of a bear market, so rallies are to be sold. Any rallies made are a corrective short covering action and the lack of market interest will continue for the foreseeable future (this is due to other alternative assets).
One has to take into consideration that the US dollar bull run may remain intact and despite the current price action (i.e. potential correction), any announcement of a rate hike by the Federal Reserve will tilt it back in favour.
Take note that Monday sell-off found support again at 1178.8 levels and this is now a key area to watch. A break below will favour the bears to take out 1168; the low made this month and potentially target the rising trend line at 1150 – 1160 levels. Failure to find support then 2015 low at 1143 will be the next target.
In order for our bearish stance to change to semi-bullish, only a break out of this range at 1224.5 will be sufficient to warrant a move higher. We favour another flush to the downside and looking to buy dips if permitted.
The current price action seems to indicate that negative economic data out from China is deemed positive for the white metal. Without reading too much into the symmetrical triangle pattern, we cannot ignore that it is breaking out and the daily chart favour another upside run. Silver is now trading above the 20, 50 and 100 dma and has the 200 dma in sight to tackle at 17.03. We do not have any crystal ball here but staying on the side line is the best option for now. Reading too much into the current setup could only increase the risk of stops taken out.
Upside remains limited with resistance from the 20 and 50 dma which comes in at 1141 and 1142 levels. As long as it is trading below the resistance level, we will not discount the possibility of lower prices in Platinum. A retest for support at 1120 might come in handy but if that fails to hold then further downside is expected. In the short term, we may see a retest on the orange line for a corrective rally. We remained biased to the downside with a retest of 1086 for a possible double bottom.
Palladium managed to find support even after the sell-off. The support came in at 38.2% fib retracement from April low and with the current price still trading above 20, 50 and 100 dma, the bulls remain in control. The pullback after it tested 800 is a healthy one and only a break below the rising trend line will put the recent rally into questions. Expect further upside in the short term and a break above 803 will allow the bulls to target 509 and 828 levels.
Taking everything into consideration, we will stay on the side line for now. A retest at 795 – 805 area cannot be discounted for a possible double top. If we see rejection, then we could expect a sell-off to retest the strong support zone at 745 to 755 levels.