Gold futures have gotten crushed recently, having fallen $110 per ounce from its all time high on December 3. Gold’s selloff occurred in conjunction with a rally in the US Dollar, as traders used the Nov. employment report as an excuse to book profits. Monday’s stabilization (Z day) allowed Tuesday to make the only higher high of the week, then the selloff resumed, making a weekly low on Wednesday at $1117.00 basis Feb. futures.
Yesterday was the Buy day in the Taylor cycle. Yesterday’s action wasn’t very encouraging for the bulls, however, as a higher open saw no followthrough. The high to low action (open to close) was indicative of the weakness in gold. For today, the inside and narrow range day (NR7) gave today a breakout setup.
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On a day with a breakout setup, we use the previous day’s high and low for reference prices for a breakout trade – a move above the previous day’s high or below the previous session low is a “go with” move. On the daily February Gold futures chart, note also the 1143.60 level – it was the midpoint of this week’s range and likely resistance for a rally.
Looking at a 10 minute chart for Feb. gold futures, we can see the overnight breakout over yesterday’s high at 1137.70 (the green line). This rally saw good followthrough early this morning, reaching 1143.20 around 4:40 AM. Two subsequent attempts to rally above that price level failed, signaling that the bull’s run was over, and a selloff ensued.
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The selloff was well underway by the time I got to the office; the strong US retail sales report was bullish for the USD and bearish for gold. By 9:10 AM it broke below yesterday’s low of 1117.00 (the red line), which was the reference price for a breakout sale. The first move below 1117 didn’t see follow through, and bargain hunters pushed it back up to 1122.70.
This recovery failed as well, and the second breach of $1117.00 was another opportunity to sell (“second pass” trades through a breakout point are generally valid, and they often work better than the first move.)
A held trade below $1117.00 will encourage further selling, with the current session low at $1114.70 as the first objective for this break. ($1114.80 is the 40 day SMA for today, likely support). A breach of that level would likely encourage a selloff to psychological support around $1100.
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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