The mining shares were hit rather hard this week with a bout of selling after the HUI made a new all time high but the price action still looks very good considering where it saw the buyers stepping up.
If you notice on the chart, the region marked as the "GAP and GO" - That constituted a gap higher above the former all time high ( A very bullish development). Normally, on a subsequent price reaction lower, one would like to see this gap region function as a level of chart support which sees the buyers come back in and bid prices back up again. That is indeed what did occur the first two trading days of this week. Price moved down through the gap on both days, but then recovered prior to the closing bell with the market closing either at the high end of the gap or just above it. However, Wednesday of this week saw this sector succumb to a large amount of selling which pressed it lower throughout the day and prevented it from recovering near the closing bell as it had done the previous two days. That bode for further weakness in the next session and that is exactly what we did get. Thursday saw a sharp spike lower across the entire sector; however, buyers showed up in large numbers, so much so that they took the price all the way back to the opening level. That is bullish price action.
What I am taking notice of is the fact that this spike lower took the index back down to a key technical chart level, 580 to be specific, a level which had effectively held the mining shares from moving higher for the better part of this year. According to the basic premise of technical analysis, a broken resistance level undergoes a change of polarity and should then serve as a level of chart support on any subsequent retracement lower in price. Today's gains on top of that spike off of the 580 level substantiates the 580 level as a critical chart support level.
You will notice that the same gap region, the GAP and GO, which formed early this month, and then subsequently failed to hold prices on the way lower, served as a resistance level to today's move higher in the shares. That too is technically significant. What these shares now need to see from a bullish standpoint, is for this former gap region to be bested and for prices to rise through this level and then hold above it. That would set the index up for another test of the recent all time high.
If the index cannot get through this former gap region, then the most likely path for it moving forward is a period of consolidation with the 610 level capping gains on the upside and the 580 level attracting buying on the downside. Such a development would signal that we are going to try a period of base building before attempting another assault higher.
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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Friday, September 16, 2011
Silver continues to hold very firm at the horizontal red line drawn in on the price chart. Each time it has moved down to this level, a level which I might add is the intersection of TWO important support levels, it has drawn out solid buying and then moved higher. This region is a former congestion zone which seems to attract buyers and forces shorts to cover. The longer this impasse continues, the better for the bulls as it is basically base-building here.