Gold futures have been on a tear lately, having rallied nearly 9 percent in the past two weeks.  This rally has seen intensifying media coverage and interest among traders.  What’s the market telling us now? Let’s look at the chart.

The long bar on the left side of the chart is Oct. 6.  The rally on the 6th took out the ’09 high of 1025.80 and the contract high at 1028.00.  For the next six sessions, the lows obediently followed the red trend line.

I circled Wednesday’s bar.  It was the contract high, but it closed with a doji, as the bulls were unable to maintain intraday strength.  Dojis are one of the patterns I monitor for Breakout Trading (get the book  here); it’s a sign of market indecision, and often an indication of an impending directional move.

Yesterday was the first significant correction in a week, maybe a month, depending on your definition of “significant”.  Wednesday’s doji yielded yesterday’s selloff.  There were two price catalysts for yesterday’s selloff:  the break of the up trend line (at 1058.50) and yesterday’s low (at 1046.20).  Yesterday’s selloff was large, but it was able to stay over Fibonacci retracement support of 1039.50 and the 10/7 low of 1037.80.

The day after a big directional move often sees a reversal, as the previous move is taken back.  This means that cyclically, we should have been looking for a rally in gold today.  Additionally, momentum dropped to a buy signal level. On a momentum buy day we look to be a buyer early in the session, with the expectation that the rally will extend over the session.  So far, that’s what we’ve seen, although the rally is fading.

Looking ahead, gold’s picture is less positive.  1057.90 is a 50% retracement of the past three day’s selloff; gold’s inability to clear that level is a warning sign for the bulls.  If it can regain that level, the broken up trend line (at 1062.00 today) will be further resistance.  Additionally, MACD could be rolling over in advance of a bearish crossover.

Watch out for trend lines

Watch out for trend lines

This is the type of analysis I do for  my Swing Trader’s Insight advisory service. For information on STI, and to sign up for a free two week trial, visit here.

The information contained here includes information from sources believed to be reliable and accurate, but no guarantee is made as to accuracy, nor do they purport to be complete. Opinions are subject to change without notice. Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

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