My last update on Thursday of last week I started the post saying that some economic data regarding initial claims was being blamed for the drop in SLV/GLD and in my opinion that the theory didn't hold much water. There is always an attempt by the financial media to explain "why" something happened and it's usually very short sighted. I also said that I had expected more upside from SLV/GLD, but there were some warning flags starting to flash. Friday we had a steep drop that actually set up a nice positive divergence leading to today as I'll show you, but both metals are still in a precarious and very transitional area.
SLV
The drop on Friday actually was a good thing as there was a strong 30-min positive divergence that day. The red trendlne marks resistance and this is perhaps the area that is causing some of the warning flags that were visible last week.
The 15 min chart also looked very strong on Friday's drop and prices are right around the area of resistance in which they started seeing 3C deterioration. This is sort of reminiscent of the SPY pullback that 3C picked up on 6/21-6/22 from resistance, the move from tat pullback led to the current short covering rally.
The 1 min chart is struggling a bit in this area with the test of early morning resistance being broken, but 3C is slightly lower. This in itself is not a strong enough divergence to cause immediate concerns, but more likely to cause a consolidation in the area which would be expected without 3C's insight.
What is more pressing at the moment are the 10-min Bollinger Bands. When the bands narrow, volatility is low and more often then not leads to a highly directional move. Last week that directional move was down, then a second squeeze of the bands sent SLV higher today.
SLV is not as clear cut as the SPY was with an obvious zone of resistance, which once broken would likely lead to a move higher and as I pointed out, a short squeeze as traders would and did take that resistance level very seriously as a line in the sand. SLV is more ambiguous as there is a zone of potential resistance from the local resistance it just barely cleared today to the larger triangle resistance from which SLV broke down from. The red arrow is an excellent example of a resistance zone rather then the more often quoted "exact" resistance levels. A move through the resistance zone could very well set up a short squeeze in SLV. A failure would likely send SLV to new trend lows.
GLD
GLD as I pointed out Thursday is in a similar situation. The drop on Friday set up a nice 30 min positive divergence sending GLD higher today. However, GLD has not cleared local resistance at the lateral red trendline.
Here's a closer look at the warning flags from last week, mostly centered on a resistance zone (red trendline) in which 3C was showing negative divergences, setting up a move lower. Since these were in place before Initial Claims came out, I don't believe IC had anything to do with the price action to follow.
GLD reacts very well with a daily 50-day moving average (exponential) as you can see numerous levels of pullback support and the occasional break of support on volume.
GLD has not cleared local resistance at the trendline, but has cleared the 50 ema. Unfortunately volume hasn't picked up much making the move suspect.
Lets not forget the bigger picture of the daily chart when a false breakout of the triangle sent the GLD downtrend in to motion. As I pointed out at the time, I DO NOT view this daily divergence to be substantial enough to cause a primary trend reversal, I look at this divergence as more of a pullback that may offer a good buying opportunity at the 150 day sma.
The 150 day sma has defined several 1-2x a year pullbacks that have been excellent buying spots for gold. If GLD does pullback, it will depend on how long the pullback takes, but the 150 sma should be in the area depicted.
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