Monday, December 12, 2011

The Gold Triangle

Feb Gold futures $GC_F have been consolidating into a big triangle the last few months since topping in early September. The price action has been less than bullish most of the last month forming a sloppy slanted head and shoulders pattern which should point to a move back down to 155 at the least. Gold tried to get back above the 1800 level--which was just about the 61.8% retracement of the entire decline from early Sept--but failed to attract buyers at that level and quickly auctioned lower.

Today the break of the big triangle is confirming that the gold market is going lower in the short term. The big signal to me was last week when gold ran up to 1760 and stopped on a dime and reversed back down to 1710 that same day to put in a bearish outside reversal candle trapping bulls above 1750-1760. That usually indicates much more than a 1 day move coming.

Looking at the volume profile chart you can see the big supply overhead that put a ceiling in gold and there is some decent support down to 1625 but below that there is a volume pocket down to about 1540, which coincidentally is also where the 61.8% retracement of the entire bull run of 2011 from 1309 low in January to 1923 high in September.

  • Today, the TTM trend turned back to confirmed sell signal with two red bars on the daily.
  • The DMI also is in bear trend mode with the histograms still red, saying the sellers are in control.
  • I dont think gold crashes into the next month but short term the risk is to the downside no doubt and shorting rallies into resistance is a profitable strategy.
  • The 200 EMA on GLD is near 157 and that looks to be tested if today's high (1718) is not regained.
  • I would look to buy January puts or put spreads on any bounce back to the 1680s on the gold futures or about the 163's on GLD.
  • Also for daytrading the gold futures are a great contract to trade for intraday and should provide plenty opportunity going into 2012 as well.
  • Long term I think gold is still alright on the monthly chart and should hold 150 on $GLD during this correction before it starts a new uptrend but not right now, there are just too many trapped bulls who bought the parabolic climb in late summertime and are now providing the fuel on downside as they sell. 

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