The Lows are Holding, But Will We See Another Retest for Gold and Silver?

by JDH on May 28, 2011

As my American friends head into their holiday weekend, one week after ours here in Canada, it’s interesting to watch market manipulation action. Let’s start with the Dow (click on any chart to enlarge):

Everything looks great. As if by magic, the Dow heads into the long holiday weekend just above the 50 day moving average. The RSI is turning up, and the market is making a series of higher highs (the blue horizontal lines) and higher lows (the red horizontal lines). Presumably we will see 13,000 on the Dow in June, and the bullsh*t market will continue. All is good.

Well, all is not good. The U.S. dollar is continues to fall, and the Big Boyz were not able to hold it above it’s 50 day moving average, but it’s not easy to stop a snowball rolling down hill.

Interestingly, while the Dow looks good, so does gold.

Notice the “crash” that occurred from the top at almost $1,580, intra day, at the beginning of the month, to the bottom of $1,460, intra-day, a week later. That drop of almost 8% looked bad, at the time. However, the 50 day moving average was never violated. In other words, the Big Boyz, having their fun with the paper market, were not able to suppress the market enough to even take out the 50 day moving average. In fact that low held, with the market not dropping as far around May 17, and we’ve not looked back.

Longer term, the bull market is obviously still intact:

The 200 day moving average has held for almost three years; the 50 day moving average has provided great support, and in fact every time the price has dropped to that level it’s indicated a buying opportunity.

What about silver? The picture is somewhat more volatile:

The 50 day moving average was broken, as was the longer term uptrend line, but we are back above the uptrend line, and it’s quite possible that a week or two from now we will be trading on the positive side of the 50 day moving average. Market manipulation only gets you so far; at some point the fundamentals re-assert themselves, and that’s what I believe we are seeing.

Looking at individual stocks, SLW.TO – Silver Wheaton Corp. has an interesting chart:

Obviously the 28, 30 and 32 levels are support levels, despite the recent “crash” from over $44 to under $32. So what’s next?

I don’t know.

We know that the Boys couldn’t get gold under it’s 50 day moving average, but they may well try again.

I assume one final retest of the lows is in order, so my plan is to sit and watch for another week or three yet. If we get one final plunge, that will probably be the time to jump back all in.

Time will tell; enjoy your long weekend, and see you next week.