I was talking to a prospective client this morning about gold futures; we were discussing whether it had yet corrected enough to be a buy. I’ve fielded a few inquiries about gold lately, so I thought I’d write up my thoughts.
Last Friday Feb Gold futures made the low of the selloff at 1110.20. This low was made in a breakout sale, following Thursday’s setup (inside day and NR7). Friday’s big decline gave meant we should look for a consolidation day, as a wide range day is often followed by a more narrow range as the previous day’s move is “digested”.
Yesterday also had a Taylor Buy Day. The Taylor Technique tells us that market swings end in “excess” before changing direction, and the volatility of breakout days often ends in “excess”. On a Buy Day we look to go long, generally early in the session. We use the previous day’s low as a “reference” price to determine where to buy.
Tuesday’s low was 1111.70, holding above Monday’s low. Yesterday’s close was higher than the open. This is the type of action to expect on a Buy Day, as net buying pressure moves the market higher over the course of the session. Yesterday’s inside day and range contraction (Tuesday’s range was 52% of Monday) showed that bulls were hesitant to pay up to buy.
In the Taylor cycle today is a Sell Day. On a Sell Day we look to liquidate long positions purchased the following day. (As Taylor laid it out, the Sell Day is to liquidate longs, not necessarily to sell short, in spite of the label.) The reference price for a Sell Day is the high of the Buy Day; in this case 1128.90. I drew the green dotted line to show this price.
Daily gold futures chart
Today’s Sell Day met its objective around the overnight open. Thus far today’s action has been negative, as it’s trading lower than the open. The bright spot for the bulls is the fact that yesterday’s low has held. The midpoint of the range from Friday’s low to the overnight high comes in at 1120.10; this should serve as a pivot point for today’s session.
By the Taylor cycle, tomorrow should be a Sell Short Day. The reference price for a sale on a SS day is the high of the sell Day, or 1130.00 for now. The fact that gold has spent the past two days confined by Friday’s range means that odds are rising for a directional move. The key price is Friday’s low at 1110.20. An ability to hold there, followed by a rally over today’s high could forge a bottom. A break below 1110.20 means recent action was a small channel consolidation in a bear market.
This is a sample of the analysis from 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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