I last addressed Gold on this site back on September 2. In that analysis I indicated that Gold had undergone a bullish breakout, with an eventual target of $2020. The potential “party-crasher” at the time (Gold was trading at $1691) was resistance at $1800. Back in October that turned out to be the case. After a solid run up from a triangle breakout price near $1650, Gold was stifled just below $1800. Since then, Gold has traded down, closing near $1609 on Friday Feb. 15.
The nearly $200 decline, so far, from that resistance level has attracted some attention, and while nothing has technically changed in this commodity in the last several months, for those looking to buy or are concerned about the direction of Gold, here is my updated strategy on playing it. A chart with the trendlines and patterns discussed is at the bottom of the article.
Overall I still believe the predominant technical factor in Gold is the bullish breakout from a year-long triangle pattern, providing a target of $2020. Therefore, over the longer-term my outlook remains bullish (up).
As indicated in my September analysis, stop loss orders should be placed below $1520–several major lows occurred just above this level throughout 2011 and 2012. With the recent inability to crack through $1800, if the price drops below $1520, and doesn’t recover back above it within a couple days, the outlook turns bearish (down). The target for a drop below major support at $1520 is $1250.
When a chart pattern breakout occurs–such as this triangle pattern–it is quite common for the price to re-test the trendline of the pattern which was recently broken In this case, the upper triangle trendline is now near $1520. Therefore, it quite possible that Gold could move very close to the stop area in the coming weeks, but I have my doubts. While $1520 is major support, there is also significant support near $1600–an area I feel is unlikely to be penetrated significantly (meaning the magnitude and duration of a move below $1600 is likely to small and short).
The decline from October looks to be nearing completion. We have seen 5 waves (and price generally moves in 5 or 3 wave patterns. Learn more about this here: Elliot Wave Tutorial), 3 of which have been down, with 2 corrective waves in between The 3rd down leg is currently underway now, and the selling pressure seen on Friday indicates to me the down wave is nearing its climatic finish. This is why I think it is possible we could dip a bit below $1600, but much of the selling will be finished by that point.
For trading purposes, I don’t recommend buying into falling markets. Therefore, if you are looking to buy Gold and want to get in on the upswing, then watch for a penetration of the downward trendline which began in October. A rally above $1685 breaks the downward trendline and also eclipses the February high. This should provide a good long entry should the longer-term bullish move unfold toward $2020–of course the metal will still need to break through $1800 for that to happen.
While these are my views, it is not a recommendation for you to buy or sell. Please consider your personal situation when making investment decisions, as this is not personal investment advice.
Cory Mitchell, CMT
Gold Daily Chart (click to enlarge)
Source: Net Dania
Futures, Stocks, and Forex Screening Software
Several months ago I was introduced to a piece of financial research software…and I have been using it ever since.
It’s called TradeMiner, and basically it allows me to quickly and easily see any trends or tendencies in stocks, currencies and futures.
Simply put, it helps find historical market patterns and cycles that have repeated on a consistent basis over the last 5, 10, or even 25 years or more. Combining the power of this research with my own technical trading methods has been a powerful combination.
Easy to use, this software generates loads of trade ideas and can basically be used in conjunction with, or in addition to, any trading system or strategy.
TradeMiner has three versions, Stocks, Futures & Forex So there’s something for everyone: