Gold Structure and Retracement Levels to Watch

Oct 17, 2012: 10:54 AM CST

What’s going on in Gold and what levels are most important to watch for clues?

Let’s take a quick look at the Daily Chart then drop to the intraday frame to get a sense of the key levels and trend structure.

After two confirmed breakouts (one from the two-month triangle and the other above the 200d SMA and $1,660 prior high), gold continued its impulse/breakout trend higher toward the $1,700 then $1,800 upper targets.

The move higher was confirmed with volume and momentum yet gold stalled and is currently retracing from the $1,800 “round number” barrier target.

Gold’s move into $1,800 was met with a visual decline (divergence) in both momentum and volume which again tipped the odds to the retracement thesis (as opposed to the “break on through $1,800″ bullish thesis).

Like the S&P 500’s structure, we’re watching this immediate swing to determine if the retracement has ended or else if it will deepen which would target lower support levels.

The key level to watch as seen on the Daily Chart is $1,720 which is a prior (sudden) support level and also reflects the rising 50 day EMA ($1,722).

A breakdown under $1,720 sets the stage for a deeper retracement at least to $1,700 if not down to the rising 200d SMA and prior breakout price level near $1,660.

That’s what we’ll be watching in the week(s) ahead – how far the current bounce travels and if $1,720 then $1,700 fails as support.

The Hourly Chart gives us a few extra clues as well as a lesson in momentum:

It’s very helpful to drop to the lower frame charts to see what extra information you can learn.

For example, the early October push toward $1,800 revealed weakness (divergences) in momentum which should have given bulls caution (and bears confidence).

Gold also has developed two “Kick-offs” or New Momentum “spike” Lows with respect to the $1,800 resistance area.

Momentum suggests that new price lows may soon occur (just as the August/September new momentum highs suggested new future price highs were likely ahead – and they were).

We look for momentum to confirm price movements (price and momentum move in the same direction) or to disconfirm them with divergences (which suggests a short-term reversal is ahead).

Again, the focal point in the structure is the $1,720 level which would confirm a short-term (intrday) trend reversal to the downside which would likely correspond with a confirming breakdown signal in the S&P 500.

Otherwise, a sudden resurgence of bullish buying pressure here would break the bearish signals and again target $1,800 and above.

Watch for a break above $1,780 that carries back to – and perhaps above $1,800 – for the bullish case or else a breakdown under $1,720 then $1,700 for the bearish scenario.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

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Comments
  • Queenbee

    Gold and silver RSI's at 1780 were so overbought there was nowhere to go but down. Americans have just about sold all their gold to "We buy gold" shops. I know one person that owns 6 gold eagles. Everyone else has paper gold if they have any at all.

  • Mandeep singh

    Can you look at Wheat or ETF-WEAT? It is forming the right consolidation as you mentioned in your book and walmart which broke upwards form 10 year consolidation!

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