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Gold Breaks Below Apex Of Compression Triangle

Commentaries & Views

This week’s failure to close above $1300 is most likely signaling a conclusion to the current rally and the beginning of a correction.

The chart below (figure 1) has an area highlighted in yellow, identifying a compressing range which has been the predominant characteristic since the beginning of this year.

Figure 1 is a 120-minute Heiken Ashi chart, commonly referred to as a Japanese average chart. On Friday, January 4th gold traded in an expanded range as it hit a high of $1300.40 before selling off and trading to a low of $1278 per ounce. The entire week of January 7th contained a series of lower highs, and higher lows, which formed a compression triangle. The week of January 14th was no different, all week the range continued to compress as current pricing approached the apex of the triangle.

On Friday, January 18th, gold broke the support line created from the compression triangle. The chart below is today's price break (figure 2).

Figure 3 is a model based upon the rally ending at the resistance level at $1300 and beginning a correction. A correction here could push prices to $1269, or as low as $1246. A retracement to $1246 could be followed by a rally to $1320 per ounce. A retracement to $1269 could be followed by the rally which will take pricing above $1340 per ounce.

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Wishing you as always, good trading,

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