On Friday gold futures broke out to a new all time high. While you should still chase some breakouts, Friday’s breakout in gold was a breakout to fade. The Taylor Trading Technique gives you the tools to recognize what to do and how to exploit both types of trades.
The daily chart for August Gold futures is below. Last week’s cycle was the following:
- Wednesday, June 16th was a breakout setup; it had the narrowest trading range of the previous seven sessions.
- Thursday saw a breakout rally, the Buy day in the Taylor Trading Technique cycle. Thursday’s rally stopped short of the contract high.
- Friday was the Sell day in the TTT cycle. The first price objective was a return to Friday’s high. The lure of the contract high proved too tempting; it was taken out and gold rallied to a new all time high at 1236.70.
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Last week’s moves meant today was the Sell Short day in the TTT cycle. For the Sell Short day we anticipate a short term high being made as the market rallies over the previous session high. This last push up creates the “excess” that marks the end of a move.
When an up trending market reaches resistance, we want to see if the market will accept or reject higher prices when it reaches that resistance. If the market is accepting of higher prices, the rally will continue after the resistance is breached. If it rejects higher prices, the rally over resistance will fail, and the move back under resistance is an opportunity for a short sale.
So today was a Sell Short day for gold futures. On a Sell Short day, we anticipate further advances will be rejected; this rejection will lead to a trend change down and a short sale opportunity. We use the previous day high as our ‘reference price’ for where the trend change occurs.
The intraday chart for August Gold is below. There were two overnight rallies over Friday’s high; if you missed the first chance to sell you got a second chance around 7 AM.
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From that sale, the drop to the old contract high at 1254.50 was the first downside target if you sold at Friday’s high. It also was an opportunity for another short sale when the market broke back below there, as it would represent a rejection of the breakout over that high.
Downside targets for the selloff? There were two I was looking for; 1241.40 is a 50% retracement of the rally off the swing low from June 10. The second point was trend line support at 1234.40.
Should gold bulls be worried? I would likely not carry short sales home overnight; the size of the selloff raised the odds that an ‘excess’ low was made today, with good odds for a Buy day rally tomorrow. Longer term, the rejection of trade above the old contract high is logically a problem if it can’t regain that level.
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.
