Latest Chart Action for Metals ETFs

03/01/2011 3:00 am EST

Focus: COMMODITIES

Corey Rosenbloom

Founder and President, Afraid to Trade

With the popular ETFs tracking gold and silver trading higher again, here are the key technical levels to watch and new commentary from a renowned market technician.

With quantitative easing, the Libya/Middle East uncertainty, and the prevailing uptrends all helping push leading precious metals funds SPDR Gold Trust (GLD) and iShares Silver Trust (SLV) to their upper resistance breaking points, let’s take a look at the current daily chart structure, note key levels to watch, and see what the charts say at the moment.

Daily Chart Analysis: iShares Silver Trust (SLV)

chart
Click to Enlarge

Compare the two charts and—if you haven’t been paying attention—you’ll be surprised at the clear outperformance of silver over gold.

We’re bombarded with commercials on TV telling us that “Now is the time to buy gold,” but perhaps they should shift their focus to silver!

All joking aside, the silver ETF—and silver prices—just bounded out to new recovery highs this morning (Mon., Feb. 28). As I write this, silver futures are trading just shy of the $34 level, and as you can see above, SLV is flirting with $33 per share.

A look back at the chart shows that the rally began in earnest after Bernanke’s Jackson Hole speech on August 27.

A three-push bearish pattern formed—complete with negative divergence—going into 2011, which gave way to a breakdown of the 20-period exponential moving average (EMA) (a “protect profits” sell signal) and then an “ABC” three-step decline that took price under the rising 50-day EMA and back to the simple target price support at $26.00.

Bulls stepped in there and silver rallied almost non-stop through February to the new recent recovery peak.

Simple methods often are more effective than complex methods, so watch the $30 per share breakout level as the key defining level between bulls (above) and bears/cautious (under).

Like we’ll see in gold, volume and momentum increased on the February rally, a bullish sign.

Now let’s turn to the “lesser-performing” metal, gold, as represented by GLD.

Daily Chart Analysis: SPDR Gold Trust (GLD)

chart
Click to Enlarge

Gold also began its rally after the Jackson Hole, “We will do anything to stimulate the economy” speech on August 27, and GLD formed a similar three-push bearish pattern, which also took it under the 20- and then 50-day EMAs.

Gold actually pierced the $129 prior price support level to bottom in late January at $128 before buyers again stepped in, and the situations in Egypt and Libya helped spur higher gold prices, in part due to a protection/uncertainty trade.

Unlike silver, gold has yet to make a new recovery high, though it stands close to doing so.

As such, watch the $138 resistance level and the prior price peaks at the $139.50 level.

Traders will likely capitalize on a breakthrough to new highs in gold, particularly above $140 in the ETF and $1,430 in the futures contract.

It’s generally unwise to play “Pick a Top” in moves as powerful as these unless we see breakdown signals like we saw in January, and as the chart shows, those breakdown signals were only good for a quick move to lower support…not a reversal.

Keep watching these levels closely as traders push prices around at these key inflection points.

By Corey Rosenbloom, trader and blogger, AfraidToTrade.com

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