Technician’s Edge: Gold Successfully Defends Critical Support

Feb 1, 2010: 6:32 PM CST

Today’s article for the Technician’s Edge column at the Green Faucet Financial Website is entitled “Gold Successfully Defends Critical Support,” where I define why $1,075 is the critical level to watch and how today’s bounce – and potential rally from this point – was anticipated from this support level and a lower timeframe positive divergence.

Here is a daily chart showing why the $1,075 level is important to watch:

Starting with the July 2009 lows near the $900 level and stretching to the December highs of $1,200 per ounce, we see the 50% Fibonacci retracement rests at the $1,075 level.

In addition to that level being important, we see the daily chart’s lower Bollinger Band acting as a confluence level with a prior price low from December along with a prior swing high from October 2009.

In the article, I also show how a positive momentum divergence on the intraday timeframe preceded today’s rally and gave us clues that odds favored a rally off support… but that if support broke, then the next target would be the $1,000 level.

This serves as a great example of how to combine a daily critical support level with a ‘hidden’ internal (intraday) positive momentum divergence and 5-wave Elliott Fractal count (for those so inclined) tipped the odds in favor of a rally off support.

I discussed the critical support level in a post last Friday entitled:

“Critical Line in the Sand for GLD and Gold.”

I also explained this liklihood in more detail – along with how other major markets are likely to move to key targets or levels – in this week’s Weekly Intermarket Report for members.

Continue watching gold to see how far this rally can last – as buyers already are off to a great start from bouncing sharply off the key support level – breaking lower timeframe moving averages and forming a powerful new momentum high (in the 3/10 Oscillator).

Corey Rosenbloom, CMT
Afraid to Trade.com

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

9 Comments

9 Responses to “Technician’s Edge: Gold Successfully Defends Critical Support”

  1. denali92 Says:

    Silver has a very similar look as one would expect with 16 being a similar CRITICAL level.

    Thanks!

    -D

  2. Richard Says:

    Corey, you write: Continue watching gold to see how far this rally can last.

    It's time to buy gold!

    The gold ETF, GLD, has been rising since January 27, 2010, as real interest rates on short term Treasur Debt has gone negative, as the yield curve has been rising (which can be seen in the increasing spread of TMF to TYD, TBT to PST, TIP to IEF, LQD to SCPB) and on concerns over Sovereign Debt.

    I strongly encourage investors to cease all brokerage trading and invest in the gold ETF, GLD, held in a trust account not at a brokerage account, British Sovereign gold coins and purchase gold at BullionVault.com and GoldMoney.com

  3. Dan de Man Says:

    I wouldn't get too excited as the US dollar is just taking a breather. Short covering rallys are usually short lived. I wouldn't be surprised to see a lower high put in by gold.

    As well silver has barely nudged and put in a black candle.

    My 2 cents.

    Thanks Corey!

    Dan

  4. Corey Rosenbloom, CMT Says:

    Good thought, Dan!

    It's best to take markets one swing at a time and note what happens at key inflection points to assess the structure better. Larger pictures usually hold sway, but nimble traders can capture profits on both sides of a 'waving' move.

  5. Corey Rosenbloom, CMT Says:

    Good call, Denali! I'll try to do a post on that as well.

  6. Dan de Man Says:

    Thanks for the advice Corey. I agree with you that nimble traders can trade both ways. That's what I love about trading. Have a great day!

    Cheers,
    Dan

  7. Corey Rosenbloom, CMT Says:

    Good thought, Dan!

    It's best to take markets one swing at a time and note what happens at key inflection points to assess the structure better. Larger pictures usually hold sway, but nimble traders can capture profits on both sides of a 'waving' move.

  8. Corey Rosenbloom, CMT Says:

    Good call, Denali! I'll try to do a post on that as well.

  9. Dan de Man Says:

    Thanks for the advice Corey. I agree with you that nimble traders can trade both ways. That's what I love about trading. Have a great day!

    Cheers,
    Dan