Let’s update a key situation we’re following in the commodity markets of Gold and Silver. Both markets are showing similar “bullish divergences at support” which gives us a key level to watch for any reversal… or breakdown/failure… in the weeks ahead.Let’s start with Gold to note the key trigger and target levels along with the divergences: Our April 13th update on the “Triple Timeframe Key Levels for Gold” pinpointed the current $1,640 level as critical to the market. Though we saw a sharp bounce from $1,620 to $1,680 after that update, price has returned to challenge the $1,640 level which will be critical going forward. I’m showing a color-coded “structure” chart to highlight the key declining trendline which currently intersects the 50% downside Fibonacci Retracement at $1,664. Traders could look to a price breakthrough above this level as a potential bullish trigger for a continuation move expected into $1,700 for a minimum/small upper target. That’s the bullish suggestion from the repeated ‘bounces’ off support and the persistent positive momentum divergences… but an upside outcome is by no means guaranteed. Instead, should price break under $1,630 then continue trading to the $1,600 level, look for a round of liquidation and bearish-positioning particularly on a breakdown under the $1,600 ’round number’ confluence level. While odds tilt towards the bulls above $1,640, each lower price support level that breaks serves to tip the scale more to the bearish side until odds would favor a breakdown under $1,600.The structural picture is very similar in Silver (support divergences): Silver experienced a more prominent ’spike’ higher at the end of February that took out the November 2011 price high – unlike gold. From there, price has retraced in an intraday downtrend fashion all the way back to the $31 level which is just above the 61.8% Fibonacci Retracement and “price polarity” level at $31.60 from prior support and resistance (mini-reversals). That being said, we’ll be watching silver relative to the horizontal green support bar I drew just under $31. For reference, silver becomes a potential breakout buy candidate above the falling trendline at the $32.00 per ounce level. Above $32 suggests a continuation move back to the $33 level and beyond that on a trigger break above $33’s resistance (Fibonacci and Price Polarity). Feel free to take a look at a recent lesson I wrote about “timeframe trend identification” using Silver as the example market. For these related markets, keep focused on the defined horizontal support levels along with the falling trendline for potential trading triggers on any breakout.
updated Apr 22, 2012
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