Gold tests important support in the two-and-a-half-year bull trend
Gold has been trending lower after a four-month period of sideways action from January to April. The bounce off the red 200-day moving average in early May topped exactly at the blue 100-day moving average at $1325. As you can see in the daily chart below, gold then collapsed below the 200-day moving average at around the same level as the longer-term 23.6% Fibonacci support at $1308.
Quite a swift move followed to $1282. I see no technical reason for the bounce from here. Nonetheless, technical analysis worked again as we held the 200-day moving average and 23.6% Fibonacci perfectly on the bounce to $1306/1308.
It’s clear that technical analysis has been useful for finding profitable levels. The peak for June on the 14th created a small bull trap as we spiked to $1309. From here we started a new leg lower targeting what is now important support. This time the 500-day moving average at $1276 comes into play, coupled with the longer-term 38.2% Fibonacci support at $1272.
A third reason to expect this area to act as strong support comes in the form of the 11-month bull trendline which joins the lows in July and December 2017. This intersects around the middle of the range at about $1274.
Here is a close-up view, also showing the slow stochastic just entering oversold territory for good measure.
So the most important support of the week is holding as I write. A bounce from here gives long traders a profit as we target $1279/80 and the first resistance at $1285/86. We should at least pause here on the first test. Further gains eventually meet the main challenge for bulls today on the recovery at $1291/93. There’s a good chance we’ll pull back from here on the first test. We could even re-test the important support at $1276/1273 for a second buying opportunity.
If bulls can eventually clear $1295 we should head for strong resistance at $1306/08. We know all about this level from the price action in late May and early June, don’t we?
Note how we also have the blue 100-week moving average at $1275 in the weekly chart below. That’s a fourth reason to expect the current area to hold for a bounce in the two-and-a-half-year bull trend.
We currently have a low at $1270 for gold, made yesterday. A break below $1268, therefore, is like to trigger stops on long positions. This will signal the important support area has been broken. A weekly close on Friday below $1270 will be further negative confirmation and continues the three-week bear trend targeting $1264/63, $1260/59 and $1253/52. We are likely, however, to continue lower as far as $1250 and even $1245/44. This level represents a 50% correction of the December 2016 to January 2018 rally.
Although significant, I would not be surprised to see further losses as far as the two-and-a-half-year trendline and 200-week moving average support at $1239/35. This should offer a low-risk buying opportunity in what will be severely oversold conditions, both on the daily and weekly charts.
Technical Analyst & Trader
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