Long Term=Bullish - major yearly resistance 1792-1804 needs to be exceeded on a monthly bass and close above 1840 to resume long term up bull trend.
Medium Term=Bullish - It takes a weekly close below 1625 to turn the trend Neutral. Resistance 1755-1765(Oct/Nov 2012 Resistance)
Intermediate Term= Neutral---it takes a close below 1647 to go bearish & close above 1711 for bullish.
Short Term= Bullish/Neutral--- Need a close above 1683 for bullish & close below 1647 for bearish.
Initial Resistance 1682--1695 and 2nd tier 1704-1714
Initial Support 1649-1659 and 2nd tier 1620-1635
our last update listed resistance at 1671-1681 and the high was 1679. Support was listed at 1649-1659 and the low was 1662.
RECAP CME NEWS
the gold market managed to hold above the prior session's low in the Monday morning trade. Gold was mostly positive on the charts this morning despite adverse currency market action, perhaps because flight to quality vibes were rekindled by the rather noted slide in US equities. Gold might also have drafted some fresh support from news of an increase in weekly investment flows into gold derivative instruments, but the partial divergence between gold and silver prices this morning probably kept some would-be gold buyers on edge. With US equities under additional pressure gold was able to hold and close above 1670.
Monday Daily Bull/Bear pivot zone 1668-1672 (ideal 1670)
Weekly Bull/Bear pivot zone 1665-1669 (Ideal 1667)
The hourly chart
The hourly chart is in transition. Let’s take in context what we see. We have a downtrend channel with upper and lower red channel lines. Since December 20th we have a price pattern (dotted white lines) that has gone sideways with a trading range of 1626 (1620-1630) on the downside and upside of 1705 (1705 – 1730). The first step in ending a downtrend is for it to stop going down. That’s why it’s important to recognize the sideways action since December 20th. It is the first step if the downtrend is ending. The next thing to note is that the dotted red arrows on those lines are forming a wedge. You can see price is compressing into this wedge. If price breaks on the downside under 1651 then the fist support is that gold downtrend line just above 1640. Below that line is the lower trading range line 1620-1630.
Downside supports
Thus the downside has 1657-1661 support, the 1651-1653 support, the 1640-1643 support and the 1620-1630 support. Those are the three price points gold will try and hold if the downside is chosen. Within a few days the 1640-1643 line will be below the 1620-1630 line and we can eliminate it.
The red channel line resistance is 1680-1685; the upper white dotted trend line is 1705. This line is also considered the breakout. The first resistance above the breakout is currently the lines at 1728-1740. Those numbers above define the price spots the most important. THE FINAL OBSERVATION TO KEEP IN MIND IS THAT THE PRICE PATTERN IS CHOPPY AND OVERLAPPING. If the upside is chosen then the chop will go away and price should accelerate higher. It’s the same for the downside. If the downside becomes in play, then price should accelerate lower. LOOK HOW CHAOTIC the pattern has become as we get to decision time.
Another way of looking at the hourly chart is with prices. It’s a busy chart but it does show the numbers where gold will have resistance potential.
For Tuesday the key price points are the red line at 1680-1685 (and up to 1687) and then 1695-1705. Those are the only two upside points to worry about first. The most important point will be the RED downtrend line and the WHITE dotted line. Finally in this view is the dotted white arrows. That is the potential uptrend channel that is developing that must overcome resistance if it is to become a full fledged uptrend channel. That is what we mean by transition where an existing downtrend, a sideways motion, and potential new uptrend is in play. The alternative of course is that the uptrend potential fails and we remain in the downtrend and move lower to mid February.
On the downside we have the green 200 hour moving average at 1668 and the lows established on Monday. Thus 1661-1668 is important 1st support on Tuesday. The 200 day moving average at 1663-1664 should be noted and last week’s low at 1651 is important and the lower white dotted trend line at 1740-1745.
Area as the 1st important support line (white dotted) and then the gold line at the 1643-1646 area for today. Last week’s low at 1651 is also important so the 1651-1655 will be important support. The one thing we don’t like is the low from 1651 last week is turning into a choppy and overlapping price wave and that is not usually a bullish outcome as we’ve seen over and over. At a minimum we need to get over the green 200 hour moving average and make that resistance.
What next?
Gold is stuck in a wedge between the 200 day average and the 50 day in the 1660-1695 area. Until that time price can go either way. We say that because it is the correct analysis. If gold is about to move higher the factors that favor such a move are as follows;
The FED meetings, the options expiration, the NFP reports are all out of the way. As far as what is not out of the way is if the NEWS continues to be good about the economy, and the potential that gold can move lower will remain in play.
The chart below is Bank of America. One of the main factors driving gold prices is the health of the banking system. It’s not the only factor, but a main one. While gold is testing its 34 week moving averages to see if the downside will end or continue, Bank of America is testing its 34 week moving averages to see if the uptrend will continue. The chart shows the 2011 high in gold when Bank of America was within two months of its low. The 2007 high on this stock was 60 dollars so a big crash that had taken away 53 dollars from the price had just taken place. There was only 2 dollars lower left to go. The 2012 low in gold took place when the banking stocks turned back down and had lost almost 40%. Since the 2012 peak in gold in October, Bank of America has risen almost 33%. Now just like gold, banking stocks are testing their moving averages. If the banking system has been repaired and the banking stocks continue higher, should we expect gold to go higher? On the other hand if there is no recovery and the banking system is still insolvent then the banking stocks should turn down from here and gold should return to the upside. While interest rates, inflation and currency devaluations do play a large component in the price of gold, ultimately, LOSS of CONFIDENCE is the biggest factor. To some extent we could say that interest rates, inflation and currency devaluations are SYMPTOMS of a loss of confidence. It’s the same in the banking system. CONFIDENCE is what’s currently driving this stock. Reality only comes into play during a tipping point or inflection points.
One other thing to note about the price pattern. It’s NOT choppy and overlapping except during the time it’s correcting, which is a small portion of time. There was only one impulse down and that was from April to Mid-May. That was just about the time gold was making its lows. The trend reversed back to the upside near the end of August. If gold is about to turn higher and sustain its move, the banking system will most likely have to turn back down and get into another round of trouble.
The Monday low in gold was within a few dollars of the 200 day moving average at 1663-1664. The 50 day moving average is near the 1695 area. At the moment gold is trapped inside the wedge on the daily chart and the moving averages. The ones who are telling you that gold is making a key low and is about to move higher are the same ones who have said the same thing during this entire correction. The ones who are telling you to still remain cautious, and that it can go either way are the ones who have not been afraid to say when gold is in a downtrend and has been in a correction. In other words the latter is providing the correct analysis while the former is telling you what you want to hear. It is easy to tell that they don’t really know. If they did, this would be the first time they tell you, not the 20th.
The chart below tells the story. If an uptrend is developing then price is going to bust above 1680 Red line channel and beeline to 1700 as the next move. What is the danger? That the pattern is choppy and overlapping. That leaves downside potential open at any time. However, that doesn’t mean we’re not going to 1700. Choppy and overlapping can remain in play as we saw last month for a while. Every test of the red channel line has been rejected since October. That means if we get above it, the move to 1700 will be fast. Then it will be up to the momentum boyz. If they jump in, then gold can rally towards mid month.
BOTTOM LINE
The pattern can still go either way. However, odds favor higher and another test of 1695-1705 if we get above that downtrend channel. We favor higher into Wednesday but REMEMBER that this is a wedge and chop and overlap can hurl the price down rather quickly and back to support areas of either 1661-1663 --- 1651-1653 and even 1641-1643. That’s just the way it is when we’re in a wedge.
Odds have a slight favor that we test 1678-1682 and if we exceed 1685 we favor a move to 1698-1705 either on Tuesday or Wednesday. Any close below 1651-1657 favors lower prices. Even though there are slight odds to the upside, keep in mind in a wedge there are no absolutes, only chop and slop until the real move comes.
YOU SHOULD NOT TAKE ANY MATERIAL posted on this BLOG AS RECOMMENDATIONS
TO BUY OR SELL GOLD OR ANY OTHER INVESTMENT VEHICLE LISTED.
TO BUY OR SELL GOLD OR ANY OTHER INVESTMENT VEHICLE LISTED.
Do your own due diligence.
No one knows tomorrow's price or circumstance.
I intend to portray my thoughts and ideas on the subject which may s be used as a tool for the reader.
I do not accept responsibility for being incorrect in my speculations on market trend.
I intend to portray my thoughts and ideas on the subject which may s be used as a tool for the reader.
I do not accept responsibility for being incorrect in my speculations on market trend.
King Regards
