Gold has bounced in recent weeks and appears poised to challenge the neckline it’s formed within the reverse head and shoulders pattern. One aspect of this pattern that bothers me is that it’s so widespread and known, I’ll almost be surprised if it complete the pattern and breaks out. While I don’t invest on a hunch or a theory, I would like to see more supporting evidence that gold is really going to break out to the upside.
Here are a few things that will tell me that the gold bull is ready to get this party started. But remember it pays to wait until the trend if firmly in place before jumping on. As much as it appears gold is going to move significantly higher, it can do the opposite. Everyone was so sure a few weeks ago the SPX was going to breakdown from it’s head/shoulders pattern. We all know what happened then and the same could happen here.
- RSI breakout on the weekly chart and a nice stair step consolidating pattern up to the neckline. If it races straight up to the neckline, it will probably exhaust itself and get rejected at the neckline. When/if it does reach the neckline, it would be ideal if it pauses for a few weeks just a hair under it before blasting higher.
- Here on the daily view the ADX is doing something very weird. The +d1 and -d1 are both pointing down along with the ADX. This doesn’t occur very often as one is normally up and one is down while the ADX is indicative of the trend. Watch this indicator for clues as to the next direction gold is going to take. When the ADX turns up, whichever d1 is on top and moving higher will tell you which way this chart is going to move.
- On the 60 minute chart the ADX has reached it’s lowest levels in over 6 months and a reading this low is somewhat rare. The ADX can act like a coil sometimes building pressure when it remains low for a longer period of time. If this can flatten out a little, the next pop is going to be big. Again, pay attention to which d1 is on top when it makes it’s move.
