In like a lion, out like a lamb

Gold came in like a lion this month, roaring to an all-time high of $1,033.90 on March 17, but went out like a lamb, closing today at $916.95, having plunged $116.95 from that euphoric peak in two weeks.

The correction is far from being done. March 2008 is looking a lot like May 2006. That blowoff top was followed by a 15-month correction that required gold to touch or closely approach its 50-week moving average no fewer than half a dozen times before a sufficiently solid foundation could be built for the recent six-month bull leg. Similar base-building may be expected this time, in which case it isn't likely that gold will surpass this month's high before late autumn, at the earliest.

GOLD (daily)

Upside: No clear indication.

Resistance: 50-day MA; bottom of channel.

Downside: RSI was rebuffed at 50. MACD is now below zero and continues to decline.

Support: February low and Fibonacci 38.2% retracement level at $888; Fib 50% level at about $843; Fib 61.8% level at a little below $800, in the vicinity of the rising 200-day MA.

Bottom line: Gold managed a brief bounce and may now be in the C leg of an ABC correction.

GOLD (weekly)

Upside: No clear indication.

Resistance: Top rail of channel.

Downside: Gold's bounce failed at the top rail of the channel. MACD has made a bearish crossover.

Support: November's high of $848; rising 50-week MA.

Bottom line: Plenty of room for RSI and MACD to fall before gold is no longer severely overbought.

SILVER (daily)

Upside: Silver is sitting on possible support at the thin blue channel line and the purple line joining the November and January highs, which offered support in February.

Resistance: 50-day MA; thick blue channel line.

Downside: Silver's bounce failed precisely at the thick blue channel line. RSI was rebuffed at 50. MACD is now below zero and continues to decline.

Support: November high and Fibonacci 50% retracement level at about $16.25; Fib 61.8% level at around $15, in the vicinity of the rising 200-day MA.

Bottom line: Like gold, silver managed a brief bounce and may now be in the C leg of an ABC correction.

SILVER (weekly)

Upside: RSI is approaching 50, where it could bounce.

Resistance: Thin blue channel lines.

Downside: Silver's bounce failed to reach the upper thin blue channel line. RSI is falling. MACD has made a bearish crossover.

Support: Bottom thick blue rail of channel; thick blue downtrend line, in the vicinity of the 50-week MA.

Bottom line: Plenty of room for MACD to fall before silver is no longer severely overbought.

GDX (daily)

Upside: No clear indication.

Resistance: Bottom rail of channel at around 50, in the vicinity of the falling 50-day MA.

Downside: The gold-mining ETF's bounce failed at the bottom rail of the channel. RSI couldn't reach 50 before turning down. MACD is below zero and falling.

Support: 200-day MA at around $45.

Bottom line: GDX managed a brief bounce and may now be in the C leg of an ABC correction.

GDX (weekly)

Upside: RSI is near 50 and could bounce from here.

Resistance: Top rail of blue channel.

Downside: MACD has made a bearish crossover.

Support: Top rail of purple channel at around $45, in the vicinity of the rising 50-week MA; bottom rail of blue channel.

Bottom line: Plenty of room for MACD to fall before GDX is no longer severely overbought.

U.S. DOLLAR INDEX (daily)

Upside: The dollar's bounce failed at the bottom rail of the channel, but the index is turning up again, as is MACD. RSI found support at 30.

Resistance: Bottom rail of channel; 50-day MA; top rail of channel.

Downside: It is conceivable that the index is forming a tiny flag, in which case it could continue to fall.

Support: Recent all-time low at 70.7.

Bottom line: Plenty of room for MACD to rise before the dollar is no longer oversold.

U.S. DOLLAR INDEX (weekly)

Upside: RSI has popped out of the oversold zone and made a bullish divergence.

Resistance: Bottom of falling wedge.

Downside: MACD made a bearish crossover and continues to decline.

Support: All-time low at 70.7.

Bottom line: Plenty of room for the dollar to rise before it is no longer oversold.

A significant correction, at last

The significant correction in gold that we saw coming in our post of March 10 began five trading days later and is now in full swing. As usual, silver, the more speculative metal, led gold on the way up to the blowoff top and is leading it on the way down. Meanwhile, the oversold U.S. dollar is showing signs of life for the first time since November.

GOLD (daily)

Upside: In just four days, gold has fallen more than $80 on a closing basis -- nearly $130 from Monday's intraday high to Thursday's intraday low. MACD-Histogram starting to look oversold.

Resistance: 50-day MA at around $934.

Downside: Monday's spectacular shooting-star candlestick signaled exhaustion of buyers. Bulls respected top rail of channel yet again, and emboldened bears took over, selling hard. Gold sliced through bottom rail, was detained briefly at 50-day MA on Wednesday, then broke through that support as well on Thursday. RSI was repelled at around 70, creating a bearish divergence, and is now below 50, which should offer resistance. Sustained recovery unlikely until RSI falls into oversold zone beneath 30 and comes back out of it. Bearish divergences also seen in MACD and MACD-Histogram. MACD has made a bearish crossover and has lots of room to fall before approaching zero.

Support: Potential Fibonacci line at $909; potential Fib line at $848, coinciding with November high.

Bottom line: Intermediate-term correction isn't likely to end until gold forms a base, possibly around $850, for a rally. A test of the 200-day MA is not out of the question.

GOLD (weekly)

Upside: Gold may retest top rail of channel from below.

Resistance: Top rail at around $950.

Downside: Breakout from channel now seen to have been a fakeout. RSI has plunged out of overbought zone, forming bearish divergence. MACD-Histogram also showing bearish divergence. MACD reversing from exceptionally overbought levels.

Support: Top of pennant, at around $850; 50-week MA.

Bottom line: The bull run from last August is over. This correction could last several months, possibly more than a year. Compare the aftermath of the last blowoff top, in May 2006.

SILVER (daily)

Upside: Silver may test broken support, now resistance, at purple line and at 50-day MA. RSI approaching oversold levels, as is MACD-Histogram.

Resistance: Purple line; 50-day MA; bottom of channel.

Downside: Silver made a double top on Monday. Top rail of channel proved insurmountable this time, on a closing basis. Silver plummeted an average of a dollar a day to close below $17 on Thursday after being detained briefly on Wednesday by channel's bottom rail. RSI was repelled at around 70, creating a bearish divergence. MACD has made a bearish crossover and has lots of room to fall before approaching zero.

Support: Fibonacci 50% retracement level at around $16.25; Fib 61.8% retracement level at around $15.

Bottom line: Silver's plunge has been a typically steep one. It could take some time to repair the damage to buyers' confidence. A test of the 200-day MA is conceivable.

SILVER (weekly)

Upside: Silver fast approaching bottom rail of channel, where it may pause for a possibly violent relief rally. RSI getting close to 50 mark and may bounce from a level between 40 and 50, if past experience of the aftermath of a blowoff top is any guide.

Resistance: Thin blue lines.

Downside: RSI has fallen out of bed from highly overbought levels. MACD, too, is reversing from exceedingly overbought levels. Silver looks headed for bottom rail of channel and, most likely, its 50-week MA.

Support: Bottom of channel at around $16; 50-week MA.

Bottom line: Exceptionally overbought silver's failure to reach top rail of channel was followed by fastest one-week decline in recent memory. Technical damage done to charts, reflecting abrupt loss in investor confidence, will take months, possibly more than a year, to repair. It will be quite a while before we see $21 silver again.

GDX (daily)

Upside: Thursday's gap-down hammer candlestick suggests short-term bounce to close gap and test bottom rail of channel. Plenty of past volume just above $46 could provide some support.

Resistance: Bottom of channel at around $49.50; 50-day MA.

Downside: Gold-mining ETF has broken down from its seven-month channel. RSI has fallen below 50. MACD has made a bearish crossover. GDX looks likely to test its 200-day MA, although a brief bounce could intervene.

Support: 200-day MA at a little under $45.

Bottom line: GDX's failure to follow through on breakout through red line has precipitated a typically violent reaction. We could see a relief bounce as early as next week.

GDX (weekly)

Upside: RSI has fallen below 50 and is near levels from which it has bounced before.

Resistance: Heavy past volume between $48 and $53 (see previous chart for clearer picture) could represent stale bulls waiting to get out.

Downside: GDX has fallen more than 15% in a week, following fakeout at top rail of blue channel. RSI has fallen below 50, creating a bearish divergence. MACD is poised to make a bearish crossover. GDX looks headed for top rail of purple channel and nearby 50-week MA. A decline to bottom of blue channel at around $40 is conceivable.

Support: Top of purple channel at a little under $45; 50-week MA, just below that.

Bottom line: In terms of price, the gold-mining ETF may be more than halfway through its decline. In terms of time, it may be many months before GDX surmounts this week's peak.

U.S. DOLLAR INDEX (daily)

Upside: Monday's hammer candlestick heralded a sharp rally. RSI has risen to 40 from heavily oversold levels. MACD is poised to make a bullish crossover, also from a heavily oversold level.

Resistance: Bottom rail of channel at around 73.

Downside: Small pullback or brief congestion possible at bottom rail of channel.

Support: Monday's intraday low at 70.7.

Bottom line: Dollar could rally as far as its 50-day MA, currently at just under 75, before taking a breather.

U.S. DOLLAR INDEX (weekly)

Upside: RSI has popped out of the oversold zone, making a bullish divergence.

Resistance: Bottom of previous congestion (descending triangle), at around 75.

Downside: MACD recently made a bearish crossover.

Support: Monday's intraday low at 70.7.

Bottom line: U.S. dollar is enjoying an oversold rally. The index is well below its declining 50-week and 200-week MAs, so the long-term trend is still down.

[Bonus chart] SILVER:GOLD RATIO (daily)

As further evidence for the hypothesis that silver leads gold at the extremes of a move, in this case a blowoff rally, note that:

• The ratio's RSI fell below 70, from highly oversold levels, on March 10 -- a week before the March 17 top in gold and silver.

• The ratio's MACD made a bearish crossover on March 12, again allowing bulls ample time to take some profits or exit their positions.

Gold soars, dollar plunges

Gold has finally broken into the four figures as the U.S. dollar plumbs new lows. On the long-term charts, gold is extremely overbought; the dollar is extremely oversold, but less so. If the buck continues to plummet, gold could surprise further on the upside.

GOLD (daily)

Upside: RSI is rising, and MACD has made bearish and then bullish crossovers in quick succession.

Resistance: Friday's intraday high of $1,009 at top rail of channel.

Downside: Top rail has offered reliable resistance since start of bull leg last summer. RSI, at 70, is at threshold of overbought zone.

Support: Bottom of channel; green uptrend line; 50-day MA.

Bottom line: That gold should test round-number resistance at $1,000 is not entirely unexpected. More than a skirmish is likely here between bulls and bears.


GOLD (weekly)

Upside: Gold continues to advance after breaking out of apparent channel. RSI and MACD still rising.

Resistance: $1,000.

Downside: Gold a long way above its 50-week MA. RSI and MACD extremely overbought. MACD-Histogram failing to confirm advance.

Support: Top rail of channel.

Bottom line: Pullback to top rail possible in not-too-distant future.


SILVER (daily)

Upside: Silver found support early in week at thin blue uptrend line, and then at green uptrend line. RSI rising.

Resistance: Top of channel; $21; $21.33.

Downside: Thursday's shooting star and Friday's doji at the top rail of the channel together form a bearish tweezer top.

Support: Green uptrend line; thin blue uptrend line; bottom of channel.

Bottom line: Topping process may continue.


SILVER (weekly)

Upside: Silver has yet to reach top of channel. RSI, while overbought, hasn't reached levels seen at March 2004 and May 2006 blowoff tops.

Resistance: Top of channel.

Downside: MACD has exceeded level seen at May 2006 blowoff top.

Support: Thin blue uptrend line at around $19.

Bottom line: Silver could climb to top of channel, then collapse, as in 2006.


GDX (daily)

Upside: GDX broke through red line joining November and January tops on Thursday, tested it on Friday and hasn't yet reached top of channel. RSI rising. MACD has bounced off its signal line.

Resistance: Top of channel.

Downside: No clear indication.

Support: Red line; 50-day MA.

Bottom line: GDX may have sufficient momentum to reach top of channel.


GDX (weekly)

Upside: GDX has broken out of its blue channel. RSI has negated the potential bearish divergence. MACD has made a bullish crossover.

Resistance: None.

Downside: Volume is declining.

Support: Top rail of blue channel.

Bottom line: Already in record territory, GDX is poised to go higher still, although a pullback to test the top of the blue channel is possible.


U.S. DOLLAR INDEX (daily)

Upside: MACD-Histogram failing to confirm dollar's recent plunge.

Resistance: Bottom rail of channel.

Downside: Dollar rose to test bottom rail of channel from which it had broken down; it was repelled in no uncertain terms, plunging rapidly to close on Friday at 71.67, yet another all-time low. RSI still falling.

Support: Fibonacci line at around 70.26.

Bottom line: The index could reach or overshoot the Fibonacci target before mounting a relief rally.


U.S. DOLLAR INDEX (weekly)

Upside: No clear indication.

Resistance: A little below 75.

Downside: RSI falling. MACD has made a bearish crossover.

Support: None.

Bottom line: While oversold, RSI and MACD are not at extreme levels, so the dollar could fall a long way more.

Six-month rally getting long in the tooth

When we started this blog on Sept. 4, 2007, the day gold broke out of its 15-month-long triangle, few would have been bold enough to predict that the price of the yellow metal would be nearly 50% higher just six months later. (The U.S. dollar index, near 81 at the time, has collapsed to 73.)

Our indicators and, especially, our trend lines have kept us onside for virtually the entire rally, although there were a couple of weeks when its potency and longevity surprised us.

But trees don't grow to the sky, and there are signs that a significant correction is in store. Gold has not revisited its 200-day moving average since mid-August and not even its 50-day MA since mid-December. One or both of these are likely to be touched before gold is able to make serious headway into the four figures.

If we are wrong and gold's rise continues unchecked, a more substantial correction would be necessary in the near future to relieve its hyper-overbought condition.

Upside: Friday's candlestick, with a long uptail and a small real body, resembles a graveyard doji, which often precedes a reversal of a downtrend.

Resistance: Top of channel, near $1,000 round number.

Downside: Significant resistance apparent at top rail of channel. RSI falling from overbought levels, repelled at 70. Bearish divergence in MACD. MACD-Histogram declining.

Support: Bottom of channel; green uptrend line; 50-day MA.

Bottom line: Correction beginning, but one brief, last gasp upward can't be ruled out.

Upside: Friday's long-tailed doji candlestick is a sign of uncertainty in the market. The breached top rail of the channel could conceivably provide support.

Resistance: Recent high at $21.33.

Downside: Congestion at top of channel suggests significant resistance. RSI declining from exceptionally overbought levels. MACD flattening out at exceptionally overbought level. MACD-Histogram declining.

Support: Green uptrend line; thin blue uptrend line; bottom of channel.

Bottom line: Correction beginning, but congestion phase of topping process may not be over.

Upside: Silver hasn't quite reached the top of the channel from the summer of 2005. RSI and MACD, while extremely overbought, are still rising and haven't reached the levels seen at the May 2006 blowoff top.

Resistance: Top of channel, a little under $22.

Downside: RSI, MACD and MACD-Histogram at extremely overbought levels.

Support: Thin blue uptrend lines; bottom of channel.

Bottom line: Blowoff tops like this one can go to greater extremes than one might expect.

Upside: GDX hasn't quite reached the top of the channel.

Resistance: Red line; top of channel.

Downside: Significant resistance is apparent at the red line connecting the recent tops. Friday's drop confirmed Thursday's bearish hanging-man candlestick. RSI and MACD-Histogram declining. MACD may be making a bearish divergence.

Support: 50-day MA; bottom of channel.

Bottom line: Correction beginning.

Upside: Friday's candlestick, with a long downtail and a small real body, resembles a hammer doji, which often precedes a rally. The U.S. dollar index is just beneath its channel and could re-enter it. RSI and MACD-Histogram are extremely oversold and turning up.

Resistance: Bottom of channel; Fibonacci line at 74.8; 50-day MA.

Downside: The dollar has broken down from its channel and may be testing the bottom rail.

Support: Friday's all-time low: 72.46.

Bottom line: After its huge one-month plunge, the dollar may be due for a bounce.

Upside: The dollar index has just entered the oversold zone. It has bounced from similar levels in the past.

Resistance: November low at 74.48.

Downside: The index has broken down from a congestion zone. RSI is falling. MACD has made a bearish crossover.

Support: None.

Bottom line: The dollar's secular decline is far from over.

Time for a bounce in the buck?

On Wednesday the U.S. dollar index sliced through final support at its previous all-time low. The index closed on Friday at 73.7, a new record low, having fallen seven sessions in a row. RSI is flattening out in oversold territory, as is MACD-Histogram. The dollar may bounce within a day or two from the bottom rail of the newly drawn channel.

While the dollar plunged, March silver rocketed from the bottom of its channel to the top in eight sessions. Silver achieved an intraday high on Friday of $20.06 but could face resistance near the round number. Friday's candlestick, similar to a hanging man, butted against the top rail, suggesting that the rally is running out of steam. At 85.55, RSI is in nosebleed territory, as is MACD.

The weekly chart shows that silver's rise has gone vertical. But neither RSI nor MACD, while overbought, are as yet at the levels seen at the previous blowoff top in May 2006.

On Thursday, GDX tested its January high, closing at $54.38, a new record, but on Friday, the gold-mining ETF fell $1.26. RSI has been repelled at 70, and MACD-Histogram has flattened out. GDX is likely to close the gap above first support at around $52.

The weekly chart shows GDX bumping up against the top rail of its blue channel. MACD has made another bullish crossover but remains at overbought levels.

April gold broke out of a tiny flag on Wednesday, then rose on Thursday and Friday, closing at an all-time high of $975. Although RSI has entered the overbought zone, gold looks like it could continue its rally, perhaps to the top of the blue channel from August, currently around $990. The small real body on Friday's candlestick could, however, denote uncertainty and herald a pause in the trend.

On the weekly chart, gold has broken out of its rising channel in a parabolic move. MACD is at spectacularly overbought levels, way above those seen at the previous blowoff peak in May 2006. Prices achieve their biggest gains just before such peaks, of course, before crashing dramatically.