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Gold/Silver action hints of concern

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Gold stocks as depicted by the Gold/Silver Index (XAU.X) continue to shine and action here as me believing the MARKET is showing concern for some of the "accounting concerns" that have been prevalent in the media as of late. Current action in the Gold/Silver Index (XAU.X) chart is right at the top of a regression channel (2 standard deviations).

Gold/Silver Index Chart - Daily Interval

"Panic" is an emotion and sometimes it can get the better of traders. A couple of weeks ago we did think a move was coming in the Gold/Silver stocks as they broke downward trend dating back to last spring at the $58 level. Since that time, gold/stocks have been working their way higher and could be ready for a near- term launch like that found last spring above regression.

If so, then it may be helpful to have retracement set like that found above. What I've done is take retracement from the recent relative low near $50 and then stretch it near the $84 level, which is the current bullish vertical count from our point and figure chart on a $1 box.

A trader could still be using a more conventional retracement with the upper end of retracement set at the May 2001 highs, but we can also get the same visual at the 50% retracement level, which almost ties into the May highs like a tight fitting glove.

For those that are believers that markets/sector/stocks can hit their bullish vertical counts, then perhaps this technique of retracement has its points.

At the same time, those that enjoy and use regression channels to perhaps understand and monitor a longer-term channel a market/sector/stock can trade within (sometimes they break out and trade a higher level of regression) may be ready to sell some strength on short-term spike above regression like that found last spring.

Jeff Bailey
Senior Market Technician
Option Investor

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