Following the Breakout in Gold into Key Level

Sep 6, 2012: 7:45 AM CST

We’ve been anticipating a breakout in gold prices, and the last few weeks have delivered the likely upside break into the initial target.

Let’s update the Daily and Weekly chart and note the key level that price may be breaking again to the upside.

Here’s the bigger picture Weekly Update:

On the Weekly Structure, price has been consolidating or retracing in the form of a Descending Triangle or Flag with a Horizontal Base at $1,550.

After months of clear support off the $1,525/$1,550 level, buyers finally broke the recent stalemate which has resulted in an initial impulse breakout above the falling trendline and weekly EMA wall of resistance near $1,620.

As was the case, we were looking for a movement up into the $1,700 level as the first target which was a simple “Round Number” resistance and prior price high level.

With that move complete, the new game-plan calls for additional breakout/impulse (upward movement) on a firm breakthrough above $1,700 which could track toward the March 2012 and November 2011 reversal high near $1,800.

The Daily Chart also gives additional insights into the strength of the breakout and importance of $1,700:

Not only did price consolidate between the $1,540 support and declining trendline resistance, but from June to August 2012, price compressed even tighter within a Symmetrical Triangle and then new resistance level at $1,630.

The initial trendline break (first buy signal) triggered in late July with an accompanying increase in volume, yet price failed to break $1,630 until the second breakout (second buy) above $1,630 in late August.

The second break also occurred on higher relative volume which did result in the anticipated impulse higher.

The recent move was a mini-bull flag which also developed an upside impulse on higher volume.

The key now for short-term and intraday gold traders hinges on how price reacts to the new $1,700 level.

Open Air (no major/obvious resistance) exists above $1,700 and it will be important – at least now on this morning’s break – to monitor against any Bull Trap that may trigger on a movement back under $1,700.

Here’s the intraday (15-min) pure price chart with a focus on $1,700:

After August 31’st continuation (daily chart mini-bull flag) impulse, price stagnated logically into the $1,700 initial target zone.

After three days of consolidation (more compression), price broke into an initial impulse move higher overnight.

In the upcoming sessions, monitor gold with the potential for further upside continuation against the possibility for a Bull Trap that may trigger on a ‘surprise’ move back under $1,700 and especially the new short-term support shelf (trendline) above $1,690.

For prior updates (for educational reference), review the following:

“Carefully Following the Initial Breakout in Gold” (July 31)

“Still Waiting for a Triangle Breakout in Gold” (July 13)

Watching Converging Trendlines in Gold” (June 4)

Structure and Support Breakdown in Gold” May 8

And as always, for timely weekly analysis and commentary on gold, join the members of the Weekly Intermarket Reports (which covers markets beyond gold).

Corey Rosenbloom, CMT
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1 Comment

One Response to “Following the Breakout in Gold into Key Level”

  1. dg Says:

    Hey Corey,

    I didn't really know who else to ask this question… I figured, you'd know better than any one else, or you'd be able to find out the answer.

    My question:
    I need to learn a system or PATTERN that will help me to jump in on these “gap and goes” – like today's move. At the open, how do I distinguish between a “gap and go”, and a gap that will close????

    The risk to trade to the upside is that it will close. The risk to trading a 'closed gap' is that it will not close!

    Potential answers:
    – Trade the trend – herein, if the trend is up, expect a gap and go [up]
    – look for price to bounce off support lines that I've drawn in
    – look for price to bounce off intraday moving averages as support lines

    Other answers?????