Hidden Strength and Levels to Watch in Gold

Aug 12, 2013: 4:56 PM CST

After triggering a retracement or bear flag trade recently, gold buyers rushed in to prevent the sell-off and continue the ongoing trading range in price.

Let’s take a look at the sudden bullish reversal and note key ‘range’ or trendline levels to watch going forward.

We’ll start with the Daily Perspective:

Gold Daily Chart Downtrend into Reversal Strength Bear Flag

Let’s start with the yellow highlighted “box” or  Range Pattern.

Gold supported twice from the $1,350 level in April and May only to resist against $1,350 recently in July (making $1,350 a key Polarity Level).

Gold initially bounced from the the $1,275 level and traded against it as resistance (early July( which similarly locks in $1,275 as a key Polarity Level to watch.

I wanted to highlight the Bear Flag or pro-trend retracement trade that triggered into late July just as the prior two retracements to the falling 20 EMA in April and May – this time the outcome was not a sharp sell-off.

Buyers stepped in at the $1,275 support level to “bust” the Bear Flag which helped send gold surging higher as cautious bears/short-sellers rushed to exit positions, especially those triggered under $1,300.

Note that a further bullish breakthrough above the $1,350 key polarity level suggests that gold will continue its strong counter-trend (downtrend) rally toward the $1,400, $1,425, then $1,450 prior high reference levels (possible targets).

Let’s step the perspective down to the hourly (60-min) chart including overnight price activity;

Gold GC Futures Contract Intraday Hourly Chart Divergences and Reversals

Note the Symmetrical Triangle pattern that triggered a downside break as August began which resulted in the breakdown toward then under the $1,300 ’round number’ level.

This also corresponded with the Daily Chart retracement or “Bear Flag” price pattern mentioned previously.

A second push – early August – under the $1,300 level was met with visual positive divergences and a violent “V-Spike” Price Reversal which took price to where we are today – back near the key $1,350 Price Polarity Pivot.

We note the negative intraday divergences developing into this key resistance level and thus will use $1,350 as the key pivot for trading and planning purposes.

A further breakthrough above $1,350 suggests that more bears/short-sellers will be forced to buy-back losing positions, joining with bulls/buyers which could help propel the price higher in tradable fashion toward the daily chart prior price high upside targets.

Continue monitoring real-time price action relative to $1,350 and any major inflection (break) above or beneath this important short-term pivot.

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Corey Rosenbloom, CMT
Afraid to Trade.com

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