ChartWatch Markets: Crossroads for gold and silver bull markets, which direction will they go from here?

In today's edition of ChartWatch Markets, we'll be covering the technicals for:

• Nasdaq Composite

• Gold Futures (Front month, back-adjusted) COMEX

• Silver Futures (Front month, back-adjusted) COMEX

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Nasdaq Composite Index

Nasdaq Composite Index chart (click here for full size image)

I trust you have your keen eye tuned into the candles and what they mean by now! 🧐

So, what do make of Wednesday’s showing? 🤔

I’ll give you some time to think!

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Okay, here’s what I think:

1. For starters, black body, the Comp lost some ground vs Tuesday.

2. Overall candle length is large compared to those in the recent past (say, last 20 or so which is a month, but really more like a couple of months). This elevates the candle’s significance – big candle – usually something big is going on in the demand-supply environment!

3. Downward pointing shadow – a decent one, but the close was below the balance point (i.e., the mid-point) so assuming no gap (there isn’t one), we can say that on-balance, the supply-side won the day – but it was a narrow win (close 22740.4 vs midpoint 22746.2!).

4. The shadow respected the short term uptrend ribbon – which therefore appears to still be acting as a zone of dynamic demand.

Conclusion? A close call, really a 50-50 candle, but boosted by the test and hold of the short term trend ribbon.

Let’s go to volume. Wow! That’s a big day indeed. Big candle plus big volume, equals big day in the demand-supply environment!

What does it all mean? This is a rare instance where an intraday chart becomes handy, just to check that the downward pointing shadow was a result of a rally in the back half of the session, and not due an aberration somewhere else.

Wednesday intraday Comp chart. Source: MarketWatch

Basically, there was a load of supply that hit a load of demand (we know this because volume was massive).

Something spooked the supply side and made them want to transact. They were motivated sellers in the first half of the day (long body, remember? This speaks to the supply-side’s motivation).

But rather than run and hide, the demand-side largely stood strong and soaked up that supply. They even demonstrated some motivation of their own late in the session – and or the supply-side ran out of motivation, or ammunition – or a combination of both!

Another "But": the demand-side couldn’t completely bottle it, so perhaps the supply-side was therefore naggingly active even during that late rally (high volume remember?).

Okay Carl, just tell me what’s going to happen tomorrow mate… shadows, volume, motivation… let me tell you – my motivation to keep reading is fading fast! 🥱

Yeah, yeah, I’m getting to that!

Something is up. Low volatility uptrends (i.e., small candles on small volume) are the best for trend traders like us. The opposite is also true: Large candles on large volume is often a precursor to trend change.

Calm down – it doesn’t mean trend change is likely, just we need to be on our toes. In summary, the short term uptrend dodged a bullet on Wednesday. The demand-side continued to show their interest – but their performance was hardly emphatic.

You know I can’t tell you what’s gong to happen tonight – that would be stupid and futile because we both know I can’t predict the future. But, I can say that as far as I can tell, trends, price action, and candles all remain skewed towards demand-side control. Whatever that’s worth to you.

This means in my view, MOTN (More Often Than Not) the next candle, and the next, are likely to be demand-side in nature. If they're not, we have some key levels to help guide as – think of them as borders that should not be crossed if the demand-side is in control of the Comp's price (see below).

View: Given present trends, price action, and candles, I remain FRP (Full Risk Position corresponds to a 100% allowable capital allocation limit for US stocks based on my personal risk management model). There's clearly some stuff going on, however, that sees me operating at a modestly higher state of alert (one must while still in the shadow of "that candle" on 10-Oct).

Key levels: 22058 is the nearest critical point of demand, the price should not close below here if the demand-side is in control of the Comp's price; a close below the short term uptrend ribbon (presently 22455-22650) will nullify the short term uptrend = ⚠️

Gold Futures (Front month, back-adjusted) COMEX

An interesting chart (click here for full size image)

The last time we covered gold was in ChartWatch Markets on Monday 20-Oct.

In that update – probably some of my best analysis ever in a ChartWatch article (no really, it was informative, educational, instructive, and well… pretty spot on!) – we noted that gold had indeed “found supply”.

Also, that the supply it found was likely motivated and in the “means business” camp! ⚠️

Also, that demand likely tried to buy the dip, but it kept dipping – meaning they were either less motivated than previously or had their fill (all cash in the market… who’s left to buy?), and as a kicker, that Friday’s candle likely ensured there was going to be a substantial amount of latent supply all the way back into the peak.

But none of that analysis is really specific to gold. It’s just specific to big black candles that close near their lows and on massive volume. So, you can apply the same logic to any chart.

Like silver, for which I noted Friday’s candle was even more foreboding – but we’ll talk about that in a little while.

For now, back to gold – which is sporting an even larger supply-side dominant candle on Tuesday, and a modest follow through on Wednesday. Volume on both days was substantial.

Again, clearly, we have found supply. It is large. It is motivated.

And, it's put a bunch of Jonny and Jenny Come-Lately traders into losses (and probably a few buy the dippers), which means there’s going to be a substantial amount of latent supply all the way back up into the new all-time high of 4398.

This is the biggest and most credible supply-side challenge to gold’s bull market since this last phase of it began back in December 2023.

Again, I’m not in the business of calling the tops of bull markets until the price is below my long term trend ribbon – and we’re nowhere near that – but price action and volume like that seen this week is consistent with market tops (i.e., volatility in price via large candles, plus volatility in demand and supply via large volume).

Those are statements of facts, not me sitting on the fence and saying it could be "the top" but it's too early to tell. Which is another statement of fact! Rest assured, I will call the end of the short term uptrend in gold when I see this:

• Price closes below the short term uptrend ribbon.

• At least a lower peak, but possibly a lower trough may also be in place.

• Predominance of supply side candles since Friday’s candle (the first shot the supply-side fired).

And I will call a new short term downtrend in gold when I see this:

• Price below the short term trend ribbon, short term trend ribbon is neutralised (amber), price has tested (from below) and as been repelled by the short term trend ribbon (i.e., it is now acting as a zone of dynamic supply).

• Falling peaks and falling troughs.

• Predominance of supply-side candles.

We’ll worry about the long term trend transition when we get closer to the long term trend ribbon.

It’s that simple. I don’t prognosticate, I follow. Stuff will happen, and I will make the call accordingly.

In the meantime, the short term trend remains up, the price action is still rising peaks and rising troughs, but clearly, something big has happened in candles and volume.

I await confirmation of the transition to supply-side control as discussed above, or hey – there’s no reason why the demand-side can’t move back in to reclaim control, either. If anything, given the prevailing state of the trend ribbons, this is what we should expect.

View: Clearly, given the aforementioned candle and volume signals, less than a FRP is required for me. Let's say "backing off to 2/3RP". Now, obviously I’m just using this concept here as a proxy for my view… i.e., whether I stay fully invested or whether I choose to back off risk to the theme being discussed – in this case, gold.

This is my view and how I would do it based on my model – which I explain to you very clearly in these updates. What you do, as always, is entirely up to you!

Key levels: 3961.2 is the closest point of demand, the price should not close below here if the demand-side is in control of gold's price; alternatively, a close below the short term uptrend ribbon (presently 3940-4040) will also nullify the short term uptrend = ⚠️

Silver Futures (Front month, back-adjusted) COMEX

An interesting chart (click here for full size image)

Ditto silver. Ditto, I provided fair warning something wasn’t quite right in the demand-supply environment on Monday, and ditto the candles and volume since represent a major lurch towards supply-side control, and therefore represent a major challenge to the silver short term uptrend.

Same as Monday, the candles here show a greater degree of supply-side control, with greater penetration into the last peak of 49.97 compared to gold’s push into its respective peak of 4081.

The short term uptrend ribbon is holding for now. That’s a good thing.

Like with gold, it’s going to be all about the nature of the rally from here if this bull market is to continue. The sooner and the sharper / more emphatic that rally – the greater the likelihood this is “just a pullback” and we’ll be back at new highs in no time:

= White candles. Lots of them. Downward pointing shadows are just as good. No closes below the short term uptrend ribbon. No lower peaks and or lower troughs.

The opposite of that wish list, and the likelihood this is more than “just a pullback” grows… and grows:

= Small demand-side candles and or mixed candles, upward pointing shadows, a close below the short term uptrend ribbon, lower peaks and or lower troughs.

(Important: The same goes for gold as per what we want/don't want to see!)

The market will tell us what it wants to do, it always does. We just have to decide what level of risk we apply while it does.

View: Ditto gold. Paring back my personal risk exposure cap to silver to 2/3RP. Again, this is a conceptual indication of what my model prescribes, and in no way should be interpreted as a recommendation for what you should do!

Key levels: 46.70 is the closest point of demand, the price should not close below here if the demand-side is in control of silver's price; alternatively, a close below the short term uptrend ribbon (presently 46.63-48.06) will also nullify the short term uptrend = ⚠️