Still Waiting for a Triangle Breakout in Gold

Jul 13, 2012: 9:51 AM CST

The current consolidation pattern in gold continues, yet the boundaries are narrowing ahead of an expected breakout from the structure.

Let’s start with the larger Weekly Chart picture and then highlight the key levels to watch going forward:

A simple price chart reveals the primary uptrend that was interrupted with a year-long retracement during 2008 with a “Bull Flag” pattern.

The early 2009 breakout set the stage for a resumption of the ongoing uptrend, and price traveled from $800 per ounce all the way to $1,900 before stalling into a second year-long (so far) retracement/consolidation pattern that has taken the form of a Descending Triangle.

Triangles are best seen as consolidation or correction patterns, where a potential trade set-up develops on a firm breakthrough of either of the triangle trendline boundaries.

Let’s zoom-in to the Daily Chart to highlight the current compressing levels at work:

The current Descending Triangle Consolidation Pattern began at the August/September 2011 top and could be coming to an end with a future price breakthrough.

The clear lower support level resides from $1,525 to $1,550 and is a hard line where buyers have stepped in strongly in the past – they appear to be doing so currently though we need to monitor the situation carefully.

The falling upper trendline has been effective in containing price at declining resistance; now, the key level now resides just above the easy-to-remember $1,600 reference which is also near the falling 50d EMA.

We try not to be biased, and instead focus our trading plans based on IF/THEN probability and reaction statements, such as:

A firm breakthrough above $1,600 that continues (especially with visual higher volume and momentum) could lead to a full breakout and trend resumption that could lead to a future move back to $1,800 at least.

However, an alternate breakdown under support that carries price under $1,500 – again on higher volume – could lead to a larger reversal and breakdown sell impulse under a shattered support floor.

Short-term and Swing Traders can develop strategies (breakouts/retracements that develop) depending on which of these trendlines fail.

Continue monitoring these compressing levels and real-time developments as buyers/sellers fight for control at these visual levels.

For detailed analysis beyond key levels (and additional timeframe commentary), join the fellow members of our Weekly Intermarket Report series.

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!

7 Comments

7 Responses to “Still Waiting for a Triangle Breakout in Gold”

  1. Friday links: trade the plan | Abnormal Returns Says:

    […] The contrarian attraction of gold.  (Mark Hulbert also Afraid to Trade) […]

  2. Bob Swandby Says:

    Corey,
    Very nice analysis.  Waiting for the breakout – either direction – more patience!

  3. Around The Net In Ten Posts - Wednesday July 18, 2012 | Market Remarks Says:

    […] Still Waiting for a Triangle Breakout in Gold (Afraid To Trade) […]

  4. Greeenlander1 Says:

    thoughts on GLD/ $GOLD?
    it finally made a move last week

  5. Carefully Watching Initial Breakout and Resistance in Gold | Afraid to Trade.com Blog Says:

    […] Carefully Watching Initial Breakout and Resistance in Gold Jul 31, 2012: 10:56 AM CST We’ve been following the long-term Support Shelf in Gold near $1,550 along with the declining “triangle” trendline, awaiting the possibility for a breakout in gold prices. […]

  6. Carefully Watching Initial Breakout and Resistance in Gold | Investing Advisers Says:

    […] We’ve been following the long-term Support Shelf in Gold near $ 1,550 along with the declining “triangle” trendline, awaiting the possibility for a breakout in gold prices. […]

  7. Following the Breakout in Gold into Key Level | Afraid to Trade.com Blog Says:

    […] “Still Waiting for a Triangle Breakout in Gold” (July 13) […]