Gold futures have staged a good rally in the past weeks, rallying $84 from the February 5 low. Today it reached a significant price level and had a good trade opportunity in the process. What was it?
Friday’s bar was a breakout setup; it was an inside day and the narrowest of the previous four sessions. Tuesday saw a breakout rally out of this setup as it rallied over last Thursday’s high and Fib resistance at 1103.80.
In the Taylor Technique, today might normally be labeled a Sell day, to sell out long positions after yesterday’s Buy day rally. However, an important concept of the TT is the idea that moves end in ‘excess’; the last bit of the move is the part that suckers in the last of the unwary bandwagon jumpers. This ‘excess’ is what sets up the move in the other direction, the move that Taylor said the ‘smart money’ ‘engineers’.
Yesterday’s breakout rally meant we were looking for a Sell Short day today. On a Sell short day we use the previous session high as the reference point; the move over that high is what creates the ‘excess’. In this case the reference price for April Gold futures was 1121.90.
An additional Short Sell reference price was the last swing high at 1126.40 on February 3. By ‘swing high’ I mean a bar that has lower highs on both sides of it. As this is where a previous rally stopped and a selloff began, it would likely be a significant price level for this rally.
The 30 minute chart for today shows today’s action. Early trade in last night’s session formed a low at 1116.30; then a rally up though yesterday’s high. The move back under yesterday’s high was the first short sale opportunity. This selloff stopped at that 1116 low area and turned back higher.
This rally took out both yesterday’s high and the 2/3 high; this proved to be the final push up. From today’s 1128.70 high, shorting opportunities were available as it dropped back under the two reference prices. The ensuing decline took out what was now a triple bottom at 1116 (triple bottoms usually don’t hold). I you hadn’t taken profits on short sales, I’d use the 1116 level as a ’pivot point’ for the balance of the session , with a close under there encouraging more selloff.
What’s ahead for gold? There’s now a significant double top on the daily chart. Given the size of the recent rally, I’d view this selloff as shallow, but it needs to clear the double top to extend the rally. On the downside, as long as it stays over psychological support at $1100 the bulls are alive.
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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