Yeah, yeah, I know. Gold, and silver especially, have one of the most dramatic bullish reversal days on record and I manage to use a Buzz Killington post title. Don't get me wrong, the action in the precious metals today was awesome. I can always get behind a 18% intraday bullish reversal in Silver (on massive volume I might add); however, I would love to have seen a little more spunk from the mining sector. Let's get to the charts and I'll explain.
OK, so why was today meaningful (and bullish) from a technical perspective? First, the magnitude of the reversal is impressive no matter how you slice it. Second, volume was monstrous - something any technician wants to see as a confirmation of the price move. Third, gold managed to close ABOVE key level of resistance, including the psychologically "round" number of $1200 and its 50 dma of $1204. Fourth, and last, its momentum indicators, MACD and RSI, are both in healthy, no-doubt-about-it uptrends with plenty of room to run. All in all, a very nice day for Mr. Gold.
"But Mr. Killington, doesn't this prove that silver is more bullish than gold?"
Unfortunately, no. As unprecedented as the move was, silver still has a lot of work to do before this chart starts looking bullish. First, the green shaded area shows where immediate overhead resistance lies. Notice how silver attempted to push into this zone for the past four days only to be turned away. While it briefly pierced the box today, it fell back and closed below it. Second, silver has had a booger of a time penetrating that descending blue trendline, established at its July highs. You can see that it's touched that line more than dozen times over the last 5 months, never able to trade above it for any period of time. I would want to see a definitive close above the line followed by several more trading days above this area to confirm the recent strength. Lastly, silver's 50 dma was a brick wall to today's advance. Unlike gold, silver was unable to trade above this level demonstrating its relative weakness.
The last chart I'd like to show is a weekly of the GDX (large cap miners). You could extend this analysis to the juniors as well (GDXJ) but I'm going to stick with the big guys for brevity.
I'm not ready to pop the champagne just yet. Let's keep in mind that PMs are still in a brutal down trend and that one day does not make a new bull market. That being said, today's action in gold and silver can be construed as nothing but bullish. For now, it's all about the follow through for the metals themselves and the miners that dig them out of the ground.