Almost everything gold and silver related printed a reversal day candle. GLD’s recent low volume move raised a red flag. The last white bullish candle’s open and close are enclosed within today’s black and bearish candle. The name of this candlestick formation is ‘bearish engulfing pattern’.

Here’s a quote from ‘Japanese Candlestick Charting Techniques’ from Steve Nison on ‘Engulfing Patterns’ page 39:

“Some factors that would increase the likelihood that an engulfing pattern would be an important reversal indicator would be:

• 2. If the engulfing pattern appears after a protracted or very fast move. A protracted trend increases the chance that potential buyers are already long. In this instance, there may be less of a supply of new longs in order to keep the market going up. A fast move makes the market overextended and vulnerable to profit taking.”

This more or less describes what I was recently thinking regarding the precious metal complex. I felt we were overextended and decided it was too dangerous for me to chase this move. I don’t think today’s price action is the start of a long lasting trend reversal. Judging from the charts I believe odds are higher for this to be a pause in order to build bullish continuation patterns. Then again it doesn’t matter what I think. I will just watch the charts as they will tell me what to do.

Tonight I started drawing potential bullish flag chart patterns into several gold and silver related stocks on my public list. Today’s high is a great pivot point one can use as the starting point of a trend line for bullish flags or wedges. The next 2 weeks will separate the wheat from the chaff. GDXJ – Junior Gold Miners ETF might provide an interesting entry soon.

Up-to-date GDXJ – Gold Junior Miners ETF cha