The week just passed provided a vivid reminder of a concept every investor who includes technical patterns in their analysis should bear in mind: support and resistance levels only matter in an orderly market. I often hear commentary expressing surprise at the lack of expected buying or selling at key technical levels, however time-and-again we see that these levels really only matter when normal volumes are present, and reaction to major news is not in play. The kind of stop-running, self-reinforcing near panic short covering (similar to the opposite action in Silver several months ago) that we saw this week in Gold and Silver (likely exacerbated by major players caught off-side) is especially key for option sellers to bear in mind since these levels will provide decent signals most of the time, but by no means all of the time and in my experience tend don’t tend to reassert themselves with the prior strength they had in calmer markets.
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