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|Subject: Re: Gold - Updated TA||Date: 8/27/2012 7:30 PM|
|Author: MDCigan||Number: 41161 of 41316|
Silver moved up by another 10% and now it is trading above 200 DMA. I assume you have closed your short.
You assume correctly. :) I actually closed it on 8/21 at 29ish as that was the 2nd daily close over the trendline off the April 2011 top. I have a couple rules I generally follow that are intended to prevent catastrophic losses and also minimize whipsaws. Always respect trendline breaks. That is the market sending you a powerful message that whatever existing trend was in place has likely reversed. But then I require 2 days to minimize the chance of a false signal.
Shorting it was a bad trade. On the bearish side, I had my fundamental opinion of global economic weakness leading to the next break to the downside, and I was looking at the giant descending triangle off the April top at 50 and the horizontal line at 26ish, but I disregarded two powerful signals that I should have heeded that it wasn't a high probability trade. Firstly, and most important, bearish sentiment towards silver was sky high. As a general rule, I think one should avoid placing trades in alignment with mass sentiment. The crowd is almost always wrong at the extremes. Additionally, the 5/16 low of 26.73 along with the 6/28 low of 26.10 had a MACD divergence. This is where price makes a lower low but the MACD indicator makes a higher low. I've seen that enough times to know better. That same divergence took place with the broad market back in October 2008 versus March 2009.
One thing about charting/TA is it isn't always crystal clear and you couuld have contradictory indicators. I need to get better about passing if most everything isn't aligned in the same direction.
Switching back to gold, you now have 4 daily closes above the 200 DMA. Depending on how the rest of this week plays out, you might also have 2 weekly closes above the 40 WMA, and also a monthly close above the 10-month moving average so any way you slice it, the trend following indicators would tell you get back in here. Like the 2008 drop, if you've followed them, you are getting back in at a slightly higher price then you got out.
I may take a half position at the end of the week with another half position when the weekly MACD goes to a buy. If and when it happens, I think breaking above the double top at 1800 would indicate the next major upleg is in full force. One could always pyramid up there with a stop on that additional allocation right at 1800. And then the same thing at the high of 1924.
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