Stepping Inside the Breakdown in Gold to Plan Nov 5

Nov 5, 2014: 1:19 PM CST

Gold can’t seem to find a suitable support level from which to rally as the downtrend continues.

Let’s update our Gold charts, note the breakdown, and then identify price levels to watch.

Here’s two quick perspectives on the Daily Chart (a near and far perspective):

The first chart shows the longer term downtrend that began with the 2011 high just shy of $2,000 per ounce.

Price has traded in a downtrend against this level ever since the lofty peak.

However, the $1,175 and $1,200 level was supposed to hold as a support level, but sellers instead took price lower, resulting in a breakout impulse as buyers and funds were forced to liquidate positions bought into the expected support target.

Here’s a zoomed-in view of the most recent action:

The tighter perspective emphasizes the most recent price action and the failure to hold $1,200 as support.

Clues were present in the distribution volume where the bullish price rallies were met with reduced volume compared to the more active selling pressure on the price declines (which were actually in the direction of the higher frame).

As logical as reversal trading strategies may be, Gold reminds us why they are riskier than pro-trend strategies and why new traders should avoid the strong temptation to call tops and bottoms.

Bigger price movements tend to develop when markets “surprise” the majority, or do something that defies logic (for example, shattering a long-term support level).

Distribution volume continues to be strong as gold crushes to new lows under $1,200.

We can take the perspective even closer to the intraday frame for a lesson and strategy for the next swing:

For a quick educational lesson, one of my favorite trade set-ups is the combination of a Higher Timeframe Resistance Level (pure price) as price touches this level with Lower Timeframe Negative Divergences.

The longer the negative divergence, the better it is to expect price to reverse down against this level.

The swing trade developed into the $1,250 level as price traded down away from this level toward the expected floor of support target into $1,200 for a successful outcome.

Now, we have a “failure to bounce” or “failure to launch” higher off the $1,175 and $1,200 support levels.

The result was an impulsive movement lower – joining the higher timeframe trend – as buyers liquidated positions.

Price gapped once again lower this morning down away from the prior gap-into-consolidation zone near $1,170.

Focus your attention on the lower frames and the impulsive downswing in price.  Do note the small positive divergence into $1,150 and the slight pick-up in bullish volume into this level (green bars).

It wouldn’t be surprising to see at least a bounce off $1,150… but if sellers push the price under $1,150, we could see even more impulsive selling as more traders liquidate “can’t fail” bullish positions (that failed).

Follow along with members of the Daily Commentary and Idealized Trades summaries for real-time updates and additional trade planning.

Corey Rosenbloom, CMT
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Corey’s book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).

1 Comment

One Response to “Stepping Inside the Breakdown in Gold to Plan Nov 5”

  1. Maddison Says:

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