Gold completed a series of chart-based steps today that tend to precede a short-term reversal in price.
Let’s take a look at these steps and the key levels to watch to judge the odds for a true reversal, or yet another ‘trap’ and failed reversal against a prevailing price downtrend.
We’ll start with the Daily Chart:
Starting with the April two-day collapse (breakdown under the key $1,525 level that resulted in an avalanche of selling pressure), price completed a snap-back rally (dead cat bounce/bear flag) successfully to the falling 20 day EMA into the $1,475 level (also the 50% Fibonacci Retracement).
This was a key “make or break” level that allowed for “IF/THEN” scenario planning:
A breakthrough higher than $1,475 ’should’ continue up to $1,500 then if above $1,500, on to at least $1,600 for a reversal.
However, a ‘likely’ continuation or second sell-off impulse would take price lower to its initial downside target for a retest of the swing low from April near the $1,325 to $1,350 area (fulfilling a ‘dead cat bounce’).
The bearish scenario unfolded which leaves us where we are currently for the present short-term “Make or Break” scenario/trade planning.
In simplest terms, this level forms the foundation for a potential short-term reversal, yet if a reversal fails to gather strength at this key level, then we’ll need to turn to the higher frame chart to project additional downside targets for gold.
With the strength of today’s Bullish Engulfing Candle at this key visual inflection price level, it’s up to the buyers to keep this potential reversal going.
We turn now to the intrday chart of Gold Futures (@GC) for additional information, including Fibonacci short-term levels for intraday targets:
Let’s start first with the Fibonacci Retracement grid as drawn.
Today’s power-reversal intraday session immediately took price to the first target – the 38.2% Retracement which aligns with the “Round Number” reference price of $1,400.
Quite simply we’ll judge the probability of a reversal higher – and bullish trade set-ups above this level – depending on the follow-through with respect to the $1,400 key pivot.
A firm breakthrough above $1,400 would continue to tilt the odds in favor of bullish price continuation, stretching initially toward the $1,430 area (61.8% retracement) and then “IF” above $1,430, “THEN” on for an eventual target back to the $1,470 and $1,475 prior high.
While we have clear upside bullish levels on which to focus (particularly for intraday traders), do watch immediate price behavior into the $1,400 target.
A failure here would dampen the probabilities of reversal, particularly if price breaks under the $1,380 key short-term pivot support.
For game-planning, we’ll look for bullish breakout/retracement continuation set-ups above $1,400 (and $1,430); we’ll be neutral/cautious between the intraday reference levels of $1,380 and $1,400; and will look for a bearish “failed trend reversal” movement if firmly under $1,380.
By the way, the 20-min (and other intraday charts) show a persistent positive momentum divergence along with a visual momentum burst or “kick-off” signal – divergences and kick-off impulse signals tend to forecast potential price reversals.
It’s up to us, however, to trade and manage risk depending if the classical odds result in a successful reversal, or else whether a failure outcome occurs (which would actually be a downtrend continuation situation).
We see a very similar structure for those who prefer using the GLD Exchange Traded Fund:
Again we see the downtrend (lower lows/lower highs with bearish moving average orientation) in motion, yet the downtrend is “in danger” of reversing based on the higher frame support target, bullish engulfing candle (daily chart), positive momentum divergences, and momentum burst/kick-off signal.
To be clear, these chart-based signals do not guarantee a reversal (if only it were that easy!), but it does alter the parameters for short-term traders with respect to key levels as mentioned for real-time assessment (and trade targeting).
I’ll be discussing this set-up along with pre-market and broader opportunities for stocks, ETfs, oil, and currencies during my Morning Market Briefing each Tuesday morning at 9:00am EST/8:00am CST with TradeStation. It’s free and anyone can join us so be sure to attend if you are available!
Corey Rosenbloom, CMT
Afraid to Trade.com
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