Trade Planning as Gold Attacks Key Breakout Level

May 30, 2013: 9:20 AM CST

With the morning breakthrough above the $1,400 confluence resistance target level, let’s take a quick update on the new levels and targets for trade planning opportunities in Gold.

We’ll start with the broader “Structure” Chart and then move to specific levels:

As gold continued its downtrend at the beginning of May, the 3/10 Momentum Oscillator showed persistent positive divergences, especially at the final low of the swing on May 20th into $1,350.

From there, a series of higher momentum highs along with bullish spikes in price contributed to the sideways trading range and key focal level at the $1,400 confluence (prior update post).

While the sideways range continued, gold held the upper level of the pattern and broke firmly and decisively above the $1,400 price, Fibonacci, and “Round Number” confluence.

The immediate target has been achieved quickly – it was the $1,413 level of the prior ‘spike’ high and 50% short-term retracement.

We’ll pull the perspective back to the Daily Chart to highlight another key indicator confluence here:

Without getting too detailed, price continues in a short-term downtrend though the reversal up off $1,350 does establish the first higher low (the first step in a trend reversal).

Take a look at my May 20th update “This Would Really be a Great Spot for a Gold Reversal” for even more information on the broader trend and key factors to watch with gold prices here.

The focal point here is the falling 20 day EMA (Exponential Moving Average) which intersects price at $1,412 (again, the high of the May 22nd spike and 50% short-term Fibonacci level).

For planning, a continuation impulse or breakout above the current resistance cluster would be expected to lead to a push up at least to the confluence of the falling 50 day EMA and May price highs into the $1,470 level.

Note the “Open Air” between the current resistance near $1,415 and the “pocket” above price toward the next target.

Short-sellers would see this as an opportunity to place bearish trades at a resistance level, targeting another swing lower toward $1,350.

In the event price does break out, the short-sellers would thus contribute to an upward move with the triggering of their stop-losses (buying-back to cover).

This is why it is important to trade or monitor price at key inflection points – the losing side tends to contribute to the eventual outcome to the next target.

Here is the short-term 30-min planning chart for reference:

The 30-min candle chart above is similar to the 10-min “structure” chart which included all overnight action (unlike the chart above, which is why it appears much more “gappy”).

Again we see the price and Fibonacci Confluence into $1,400 and the new focal point (target) into $1,412.

A further breakout above $1,414 and $1,415 could quickly lead to a push to the $1,430 price and 61.8% short-term Fibonacci Level.

Keep in mind that the 20d EMA intersects price here at $1,412 as well, which would make a breakout here significant.

We’ll always be on guard for a “trap” which would unfold as an initial push above $1,415 that immediately reverses back under $1,410, and in that event, we would look for trapped buyers above $1,415 to liquidate to create a quick impulse back to the $1,400 confluence.

As shown on the highlighted levels, any breakdown back under $1,400 enters the “Bearish Territory” and thus bearish bias for short-term trading.

A breakthrough above here beyond $1,415 similarly enters “Bullish Territory” up to $1,430.  A firm breakthrough above $1,430 enters even higher Bullish Territory which triggers the Daily Chart impulse trade or thesis to target the $1,470 level.

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Corey Rosenbloom, CMT
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