Gold Forming Symmetrical Triangle – Waiting for Breakout

Jul 27, 2009: 10:43 AM CST

Gold prices appear to be forming a type of symmetrical triangle consolidation as seen in both the daily and weekly timeframes as of July 26, 2009.  Let’s take a look and note critical support and resistance levels.

All eyes of course are focused on the $1,000 per ounce level, as a breakout there would most likely lead to a large price run-up in gold.  However, we’re not quite there yet.

The key levels to watch on a ‘wider’ basis are the $1,000 level (critical resistance) and the $850 level (which also reflects Fibonacci support – not shown).  A breakdown from $850 would lead to an almost certain retest of $700… but again we’re not there yet.

For now, a symmetrical triangle consolidation pattern is forming, which currently compresses price between $910 and $960.  The triangle is nearing completion and perhaps the ‘best’ play would be a clean break above the upper line to target a ‘magnet trade’ to $1,000, or beneath the lower line also to target a ‘magnet trade’ down to $850.

Until then, we are getting little guidiance from the 20 or 50 day EMA (in a consolidation phase, moving averages are virtually useless as support and resistance) so we focus on price highs and lows for clues.

For full analysis of the Monthly, Weekly, and Daily charts of Gold, including Fibonacci grids and possible Elliott Wave counts, please subscribe to our new “Weekly Intermarket Technical Analysis” reports (20+ PDF pages each Sunday at $47.oo per month), which also cover the 10-Year Note Price, S&P 500, Crude Oil, and the US Dollar index – noting trading opportunities, key levels to watch for targets, trade entries, and management, and a broader ‘macro-view’ of interrelated markets.

Corey Rosenbloom, CMT

9 Comments

9 Responses to “Gold Forming Symmetrical Triangle – Waiting for Breakout”

  1. aavidtrades Says:

    Corey
    Good analysis. However, once the triangle is complete shouldn't there be a direction reversal and so the likelihood of the Gold price going lower seems higher than it going higher after the triangle is complete.

  2. Dominick Says:

    Hello Corey. Do these triangles sometimes give hints as to which way they may break. For example, if the current price wave up fails to touch the upper trendline would that indicate weakness and possibly a break to the downside?

    Also, (and this is a little off topic)what would you for recommend for reading material on trading? Would it be the books on the C.M.T. website or do you have your own recommendations?
    Thanks.

  3. Corey Rosenbloom, CMT Says:

    Aavid,

    Not necessarily – classic TA would hint that the triangle would resolve to the upside (triangles are often continuation patterns but there's no guarantee on that) but from my experience it's best to play the edge from the breakout instead of trying to guess which direction it will resolve. The 'edge' comes from the Price Expansion/Contraction principle.

  4. Corey Rosenbloom, CMT Says:

    Dominick,

    Trend structure often gives us clues in that most symmetrical triangles break IN the direction of the prevailing trend BUT that's not a guaranteed rule – it might be as high as 60% continuation to 40% reversal which isn't much of an accuracy edge.

    Possibly, yes, in that if we get a downswing from here, the failure to test the upper line would be an early sign but still I would wait for the break to play into the Price Expansion/Contraction edge (that price will form an expansion move after a contraction move).

    The MTA (CMT) reading list is probably the most professional list out there for serious traders – some of the books are 800 pages and are college textbooks! But they'll teach you all you need to know to begin integrating.

    Otherwise, Dr. Steenbarger's “Enhancing Trader Performance” and Mark Douglas' “Trading in the Zone” always top my recommended reading list.

  5. jmcdowell Says:

    An interesting observation: The length of the lower line of the triangle from first to third low divided by the length of the upper line from first to second peak is approx 1.618 phi.

  6. jmcdowell Says:

    An interesting observation: The length of the lower line of the triangle from first to third low divided by the length of the upper line from first to second peak is approx 1.618 phi.

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