Metals Outlook: Silver leads commodities rally

(Kitco News) - April gold futures surged to a fresh all-time high Monday morning, but have reversed course and plunged into negative territory. From a scalping perspective, the intraday technical trend has turned negative for the gold market. A potential "bearish reversal" day formation is setting up on the daily chart, but would need a weaker settlement to confirm.
Shorter-term traders do need to use caution in their current outlook. The pop to a new all-time high could be a technical "bull trap." Bull traps occur when markets rally through key resistance zones, but then quickly reverse, "trapping" all the new longs that joined the rally. Since November 2010, the gold market had carved out a strong ceiling of "triple top" resistance on the daily chart from the November 9 high at $1428, the December 7 high at $1434 and the January 3 high at $1426. That resistance zone held firm until early March.
Dave Toth, director of technical analysis at R.J. O'Brien and rjomrt.com offers up a very clear stop-loss point for traders to monitor to near term. Despite the intraday reversal, Toth said: "the trend is up on all scales, with the exception of the scalping timeframe." Looking at the daily chart for April gold, Toth pointed to the March 3 reaction low at $1410.60 as a clear line in the sand for the bulls to watch.
If April gold futures were to crack that critical daily support level at $1410.60 near term, Toth said: 'it would expose the market to a correction of last month's rally, but it would not threaten the secular bull trend."
Near term, the $1410.60 low is the level the bears need to break in order to "confirm a bearish divergence in momentum to suggest whatever high is left in its wake as the possible end of a 5-wave Elliott sequence from the January 28 low," Toth added.
Nonetheless, Toth pointed to the intraday pullback in April gold futures and added: "the odds are the setback today is another corrective dip or buying opportunity."
Ken Tower, long-time chart watcher and senior analyst at Quantitative Analysis Service said his firm's big picture outlook is that "gold still has an upward bias. It certainly wants to move higher. It has been in a quiet period for the past six months or so, but it is turning up again." Overall, he concluded: "it looks higher."
Shifting back down to the scalper's timeframe, Toth noted that in recent days, the bulls have taken out key resistances at $1418 and then the old all-time high from December 7 at $1432. "If this market is still truly strong, it should stay above those levels," he concluded.
SILVER, BIG GAINER
Shifting over to the daily May silver chart, the technical picture remains stronger. May silver surged to a new contract high Monday and remains higher on the day, despite the pullback in gold.
Toth pointed to the rally in both gold and silver off the January 28 daily low and noted that while gold has advanced about 10% since that day, silver prices are up nearly 40% off that same daily low.
"It's really strong," Toth said of the silver market. "This thing [silver] has been rallying exponentially. This trend has been simply up."
Looking ahead, Toth did note that the silver market is roughly $5 off the all-time high at 41.40 per ounce, set in January 1980. However, instead of focusing on upside projections or resistance levels from over 30 years ago, Toth said: "the only thing that really is going to matter is a failure below the recent corrective low."
Pointing to the daily May silver chart, Toth identified a similar corrective low to the $1410.60 level in gold. He highlighted the March 3 daily low at 34.03 as imperative to monitor in May silver near term. That is the level that silver bears would need to crack in order to suggest a corrective retreat was underway, he concluded.

(Source: http://www.commodityonline.com/news/Metals-Outlook-Silver-leads-commodities-rally-37016-3-1.html)