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Technical Trading: Gold Bulls Stall For Now Below October Highs
By Kira McCaffrey Brecht of Kitco NewsMonday March 10, 2014 8:54 AM
(Kitco News) - The gold market has had an impressive run higher in recent weeks, but for now the bulls have shifted into a holding pattern just below the October highs. The near and intermediate term trends are bullish and the April gold contract is trading above all significant moving averages, which is a positive signal to the trend following crowd.
Since January, April gold futures have been rising within a well defined bull channel, see below in Figure 1. The overall action has been quite bullish, but last week the market ran out of gas just below an important technical chart zone from the October 2013 highs at the $1,361-1,360 region.
Several daily momentum studies, including slow stochastics and the relative strength index reached overbought levels in February and bearish divergences emerged over the last week as the market pushed to new 2014 highs.
What does this mean? Markets don't go in a straight line up or down. They need to pause and correct trend moves. Markets can correct in two ways—either through "price" (a downside correction) or "time" (a sideways consolidation). So far, April gold futures have been correcting via a sideways consolidation.
Some technical traders who use channels rely on a mid-channel support line. Again, see Figure 1 below. The green lines define the rising bull channel for gold in recent months. The red line is the mid-channel support line. The concept is that if April gold breaks the mid-channel line a retreat to the lower portion of the channel is likely. Looking back in recent month, you can see that gold spent time moving above and below that line.
Bottom line? Watch the 20-day moving average support zone at $1,324 on Monday, and the Feb. 28 swing low support at $1,319.30. If that zone cracks on a closing basis this week, gold will be vulnerable to a corrective retreat back toward the lower channel line.
On the upside, a sustained rally and close above $1,361 will signal that the bulls are off to the races again, with a major longer-term objective at the $1,430 region.
The near and medium term trends are bullish. But, the market has gotten tired and a period of sideways consolidation or retreat toward the lower bull channel line is possible near term.
Kira Brecht is managing editor at TraderPlanet.
By Kira Brecht, Kitco.com
Follow her on Twitter @KiraBrecht
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