Friday was the day when silver and mining stocks were likely to reverse based on their triangle-apex-based turning points and today is the day of gold's apex-based reversal. Therefore, it seems likely that gold, silver and mining stocks are forming the final top for this short-term upswing, or that it is already in place. The problem with the reversal scenario is that the previous week was one big bearish reversal in the USD Index. Weekly reversals are significant and thus odds of a move lower in the USD increased substantially. This means more upside in metals and miners. What should one do with the profits from the current long position?
We opened the long positions on May 1st (just one day after cashing in profits from the previous short trade) and we tripled them on the same day, just a few hours later. Gold was trading at $1,306, and silver was trading at $16.10.
We wrote that it seemed that metals and miners would move higher in the following 2 weeks or so and this was based i.a. on the True Seasonal patterns and on the apex-based turning points for gold, silver and mining stocks. The turning point for gold is today and the turning points for silver and miners were last Friday. In short, it seems that the time for the rally is up.
Yet, the key external factor for the precious metals market – the USD Index – is suggesting otherwise. Let's start today's chart analysis with it and check how much it really changes (chart courtesy of StockCharts).
USD Index Reversal
The reversal is big and clear. There's no doubt that it's visible from the long-term perspective. The USD Index tried to move above 93 and it failed to do so. In fact, the USD erased all the gains that it managed to achieve earlier in the week. The implications are bearish at least for this week.
Yet, does it imply that the USD Index has to move much lower?
No.
The first strong support is provided by the 38.2% Fibonacci retracement level (approximately 91.6) and it's about 0.8 index point below Friday's closing price. At the moment of writing these words, the USDX is already 0.17 lower, so the distance is now only 0.63 index points.
This level is a likely target also because of the analogy to the 2014 rally.
The above chart shows that last week the USD moved very close to the rising dashed green line and when that was the case in 2014, we saw the first pullback within the rally.
