I talked about how gold, silver and gold mining stocks have been flying under the media radar for over a year and that they were not catching the attention of traders, investors and the public anymore. I also said it would take some sharp price action (breakdown or rally) for it to be front and center again on TV, radio and newspapers.
But since gold has plummeted 17.5%, dropping from $1,600 down to $1,320 per ounce, and with silver and gold stocks falling also, they are now headline news once again. This move has caused some serious damage to the charts when looking at it from a technical analysis point of view.
Below are some basic analysis points that show a new swing trading entry point.
The Technical Traders Chart Analysis:
Once a support level has been broken it becomes resistance. Gold is trading under a major resistance level.
Since the April 15 low, gold has been setting up for another short-selling entry point. Remember, the market tends to move in bursts of three, seven or 10 days, then price reverses direction or pauses. It has now been 10 days.
Moving average resistance:
Gold has worked its way up to the 20-day moving average, which can act as resistance.
Bearish inside bars:
This type of chart pattern points to lower prices. When there is a big down day followed by three, seven or 10 up days, inside the price action of the down bar we can typically expect another sharp drop that tests the recent lows, as shown with the arrow on the chart.
Gold Short-Selling Conclusion:
In short, gold is setting up for a low-risk entry point that should allow us to profit from lower gold prices. Using an inverse ETF like DZZ or even the gold mining stock inverse ETF DUST could be played. These funds go up in value as the price of gold falls.
While I expect gold to pull back, I do not think it will make another leg lower. Instead, a test of the recent low or pierce of the low by a few bucks will then reverse and start building a bullish basing pattern before going higher.
This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Chris Vermeulen is founder of the popular trading sites www.thegoldandoilguy.com and www.ActiveTradingPartners.com. There he shares his highly successful, low-risk trading method. Since 2001, Chris has been a leader in teaching others to skillfully trade in gold, silver, oil and stocks in both bull and bear markets.