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Opportunity looms big for bullish gold/silver plays

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Traders shouldn't be writing off bullish trades in the Gold/Silver Index (XAU.X) and many of the stocks in that group just yet. PremierMarkets.com feels that the best is yet to come for a bullish trade in this index. Those that followed a couple of our previous bullish plays in Barrick Gold (ABX) from early April should be chomping at the bit with the pullback we're seeing in gold/silver stocks in the previous two sessions. We also think that there are still some shorts in these stocks at much lower levels that are chomping at the bit to get covered. That's the demand you want to see for the pullback after a big rally higher, then play that momentum back to the upside. Here's what we're looking for in the XAU.X.

Gold/Silver Index - $1 box

I'm using the $1 box today in the XAU.X to help refine a pending bullish opportunity in gold/silver stocks. I'm showing the technique called "channeling" with the upward trending blue lines. What we do here is simply look for "walls of O's" (continuous selling on a leg down) that see partial reversals up take place as short-term demand occurs. Often times, these actually become upward channels when a stock or index turns around into a bullish trend. That's what the XAU.X did in March, and now we look for our channel to be the new upward channel for a leg higher in the XAU.X. You can almost picture this like a regression channel that you might use in your bar charts. What I'm looking for here is a pullback in the XAU.X near $57-$58 as an entry point for many gold/silver index component stocks. Not only is that the base of our newly formed channel, but it also comes right at previous double top buy signal at $58. You can see how powerful that long column of X's (demand) from 48-65 was without so much as a 3-box reversal. Why was it so long and powerful? Because shorts got their heads handed to them and they covered and kept trying to cover on the break at $58. PremierMarket.com actually dropped coverage of a bullish play in ABX on May 21st when ABX was trading $18.95. Now the stock trades $17.69 nearly 7% lower. Look for some bullish plays to be profiled once again in PremierMarkets.com.

Jeff Bailey
Assistant Analyst

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