Silver Ugly Monster Check

Certainly you’re as astonished as I am about the underperformance of silver compared with gold. Gold is steadily working its way upwards from its lows regaining its gloss gradually whereas the gray metal seems to be treading water.

Still stranger – as I think – are the signs of GUNNER24 on daily basis. While GUNNER24 in silver has been positioned short for several days there was an unambiguous gold buy signal on Friday. Both metals are expected to go into one direction like a tandem. Since gold is clearly marching towards 1540 today I’m going to tackle the long-term silver setups to get at least a little enlightenment as far as the further course of the silver correction is concerned.

But let’s go to the gold buy signal on daily basis:

The situation: During the whole week gold tested the 1*1 Gann Angle. On Tuesday it seemed to be broken finally, being gold as near as a couple of dollars to the sell signal we worked out in the issue of 05/15. Let’s remember about it the building of a GUNNER24 Up Setup:

Above the 1*1 Gann Angle which divides the setup into two triangles the market is bullish. That’s why we look for some profitable long entries above the 1*1.

Below the 1*1 the market is in the bearish half of the setup. So, according to the rules we tend to go short when the corresponding signs appear.

Well. But beginning with the late Tuesday rally gold escaped again beyond the 1*1 and the 4th double arc that provides support. On Friday the resistance diagonal we can see in the chart was overcome on closing price basis. Thus, at least gold decided to continue the rebound. We are long at 1513.6. First target is 1525. Main target is the 5th double arc at 1540 which should be reached on 06/08 at the latest. SL 1485.

For the crosswise check and for hedging the targets we’ll use the parallel existing daily 5 Candle GUNNER24 Down Setup. It starts at the all-time high.

As early as in the issue of 05/08 I suggested that the 1462.5 might be the first significant low of the beginning correction. That was confirmed when the limit of the first square was tested by the Tuesday low of 1471.1 (right orange circle). That confirmation makes us pretty sure that gold will follow this setup.

Since the Friday candle overcame the 2*1 Gann Angle easily we can further assume that subsequently the 1*1 Gann Angle will have to be touched. The moment is uncertain for the time being. At first gold should head for the 1525 being the natural resistance in the middle of the first square. The market is going to be backed by the support diagonal which will proceed at 1504 on Monday. There’s a good point for a daily low there.

The break of the 1525 clears immediately the way to the 1*1 Gann Angle or the 1540, respectively. But I suppose the following: After the 1525 will be reached a more violent rebound from this resistance will follow at first, and in the course of the week the 1500-1505 will have to be tested again before the 1540 should be targeted.

So let’s deal with silver and its underperformance. Before I go into the weekly Ugly Monster here’s the actual state of the daily down setup:

On Tuesday by the end of the electronic market we went short at 33.60. The 3rd double arc was broken. Like gold, silver was showing a strong rebound from the Tuesday lows escaping back to the sphere of the 3rd double arc. For three days the upper line of the 3rd double arc has been limiting the further rise. The upper ends of the candle bodies are touching precisely that upper line of the 3rd one. It’s a strong resistance so far! On the other hand the 3rd one is providing a strong support by its lower line.

Here we see why the market consists of two components: price AND time. The price component is always just straight – a horizontal or any old how diagonal support or resistance catches or brakes the price at a certain point. The time bends those lines: Just watch the last three candle bodies orient themselves – in their respective upper limits – upwards at the bended upper line of the 3rd double arc. The price is following the upper line that’s bended upwards.

If a closing price above this upper line of the 3rd is generated silver should have finally made it being allowed to orient itself upwards again without the "temporal" chains of the 3rd. That’s why we’ll cover the shorts with a loss in case of a closing price above 36. However a long signal wouldn’t be generated thereby.

I feel GUNNER24 generated a "premature" short signal. I think GUNNER24 is anticipating that the 4th double arc will be reached sometime. There’s much to be said for it:

A) The closing below the 3rd double arc activated the 4th double arc as to become a target. In a 70% of the cases it will be reached.

B) Unequivocally we see a consolidation at the lows. It’s going to break downwards, according to the rules.

The reason why silver has most probably produced a premature short signal is to be found in the higher time frames and the enormously strong support areas those setups indicate.

Analyzing first the actual monthly setup we recognize that the May low (32.30) was marked exactly at the support horizontal anchored left in the setup. As it’s standing today, the May candle is indicating a lower wick that intends to spike a lot away from the support area hatched green in the setup. That’s very positive. Spikes indicate strong supports. In the monthly setup silver has an enormously profound support area – beginning with the uppermost horizontal limit at 33.62 down to the lower line of the 3rd double arc at about 30$. That’s more than a 10% of the actual price range where for any price an upwards turn may occur, where at any time the final low of this down swing maybe marked…

Obvious of course is that silver has reached the upper limit of the setup with the April and the May candle and that a monster counter reaction was released there. Silver just saw a significant top. If the May candle does not re-conquer the 4th double arc what I assume there was simply too much blood left on the carpet to say that the upwards trend is intact.

No, silver won’t be able to reach again or exceed the 50$ before the end of the year. In this context the 4th double arc – which is likely to have been broken unambiguously in May – should exercise a strong resistance function in the further course of the year.

Very important is the May closing price. If it is below 37.10 the Gann Angle there would be broken and "REALLY" the rally Gann Angle will have to be touched at 30$ in the course of the coming months!! That might happen in June or July.

If a daily close of more than 35.20 is produced in the daily setup the next strong resistance at 36.30 will be recognizable (the horizontal in the middle of the just passed square) and then the 37.10.

Ugly Monster Check:

Finishing our silver analysis now come the weekly silver Ugly Monster at last. Here again with the sell off candle a lot of damage was done. Two double arcs which at least should have provided a little support was virtually pulverized. That means: The market has got to go down, there’s an enormous down pressure!

Another negative sign is produced by the clearly broken resistance Gann Angle. According to the rule the next important Gann Angle below, in this case the 1*1 will have to be tested. There, at 31.50 – 31.00 the test should follow. You can’t go long safely before that.

The support area is very clearly below 35.00. That’s where the dips are being bought, three beautiful spike candles. Recalling again the monthly support area hence from 33.60 on there’s an overlapping of support areas in the weekly and monthly time frames. That prevents silver from falling lower.

Taking into consideration both time frames the support area is lying between 35 and 30 – five dollars! From my point of view, that big support area makes it impossible to trade on position with profit. A profitable long entry doesn’t make sense before reaching the 1*1 Gann Angle in the weekly ugly Monster which is the most important down magnet.

Another relatively safe long signal would be if the 4th double arc were broken upwards in the Ugly Monster. That one is proceeding at 36 until about 37.50. So there are important resistances not only here in the weekly setup but also in the monthly setup, we remember. So we are analyzing again the same resistances in two different time frames.

Conclusion: All in all during the coming weeks silver should rather orient itself more sideways with tendency downwards into the direction of 31.50- 30$. The month of May might still close near 37, and during the next weeks it should go pretty tenaciously downwards because some strong supports are present. Day trading in both directions or swing trading should be the dominating tactics. Concerning the building of positions or physically you may buy in four tranches, for instance at 33, 32, 31, 30. But you have to get ready for sitting on "virtual" losses for a pretty long time.

The Ugly Monster and the monthly up setup have reached their maximum extension in terms of price but not yet on time! I.e. we’ll see a new approach run to the 50, and we may expect higher prices than the April top. But probably the final low of the downturn should be formed in the range of 31.50 to 31.00 in June or July at first.

Be prepared!

Eduard Altmann