Hawaii Six O - Gary Wagner
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Since the middle of February immediately following this year’s high at $1350, we have seen a series of lower highs, and lower lows. This trend would continue until we had a double bottom on April 24th and May 2nd at approximately $1267. From the second bottom on May 2nd the market began a short-lived rally taking gold prices just above $1300 per ounce.
Currently gold is trading at $1274.40, very close to achieving a flat bottom at the lows of $1267. This chart action indicates the real potential for the identification of a chart pattern called a descending triangle.
According to Investopedia, “A descending triangle is a bearish chart pattern used in technical analysis that is created by drawing one trend line that connects a series of lower highs and a second horizontal trend line that connects a series of lows. Oftentimes, traders watch for a move below the lower support trend line because it suggests that the downward momentum is building and a breakdown is imminent. Once the breakdown occurs, traders enter into short positions and aggressively help push the price of the asset even lower.”
Technically speaking this clearly indicates potential for gold pricing to go much lower with one caveat: if gold reaches $1267, finds support and trades to a higher price and breaches the last high of $1302. On a fundamental basis this we would require a dynamic change in the current direction of U.S equities and the U.S dollar.
Equities have been on a dynamic move to the upside based on solid economic data as well as extremely bullish market sentiment. Those are the major factors which have moved the Dow, S&P 500 and the NASDAQ composite to higher prices. Since gold is paired with the U.S. dollar and the dollar has been on an upswing, additional bearish pressure has been added to prices. Only if the trade war, Iran or Brexit concerns grow will the fundamentals behind recent price action reverse.
However, if those fundamental factors continue we would expect gold prices to reach $1267 and either break below that price point to a lower low or rally to a price point below the former price point $1302, and then trade lower to $1267 at which point it could once again break the flat bottom which is evident in gold. If that occurs the next target for potential support would occur at $1248, and below that at $1221.90. These price points represent the Fibonacci retracement levels of .618% ($1248), and the Fibonacci retracement level of .78% ($1221.90). Since this chart pattern is viewed as a extremely bearish pattern with the most likely outcome of trading to a lower low by breaking below the flat bottom it is likely that gold would trade lower before it returns to a bullish scenario.
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Wishing you as always, good trading,