Technical Trading: Gold Bulls Bide Their Time In Triangle
Monday April 18, 2016 11:25
(Kitco News) - Gold prices popped higher early Monday morning following news that a meeting among major producing oil nations fell apart without an expected output freeze. Gold benefitted from increased levels of risk aversion in the wake of the failed talks.
Technically, the daily chart shows Comex June gold futures consolidating within a large symmetrical triangle pattern. In technical lingo, triangles are a bullish continuation pattern. The formation offers gold bulls a chance to rest up and regain their strength for the next rally wave following the strong move higher in the first quarter.
Here's how triangles work: Triangles patterns are generally continuation patterns, which means a topside breakout will trigger a resumption of the previous trend move (in this case a rising trend). Triangles need to confirm before they reach their "apex" point. A sustained rally and close above the triangle resistance point will confirm an upside breakout. Conservative technical traders can also wait for a rally and close above the triangle top at $1,287.80.
Triangles offer technical traders a so-called "measured move" objective. That can be calculated by measuring the width of the triangle (at its widest point) and applying that to the breakout point. Get ready: A sustained and confirmed upside breakout would open the door for a strong new rally wave in the gold market.
On the downside: A sell-off below the lower triangle line would be a negative signal and would destroy the bullish potential of this developing pattern. Watch support at $1,207.70 and $1,192.10 –those points need to hold to keep the bullish potential intact.
In the very short-term, gold bulls are testing 20-day moving average resistance and sustained gains above that line would be a positive signal.
Bottom line: Beware of choppy, trendless conditions within the triangle. Swing traders and long-term traders may want to move to the sidelines until the triangle resolves.
By Kira Brecht, contributing to Kitco News;