Gold dropped to support 1290-1292 yesterday as we have recently commented that the resistance 1306-1308 is 1.618 Fibonnaci Extension and likely a reversal point. We also stressed that gold reached its intraday and daily resistances with double bearish divergence on oscillators indicators on the 1-hour chart which indicates strong reversal. So our trading plan was just correct yesterday.
Now gold has reached our support at 1290-1292, what is the next direction ? Take a look at the 1-hour chart above. Price is forming a head and shoulders pattern with neckline support at 1289-1290. If price breaks down under that neckline support, gold will drop to lower supports. By using Fibonnaci Extension, first support can be seen at 1280-1283. Breaking down under 1280 can lead to second support at 1267-1270.
As it is the last trading day of the week, this weekly close will be important as it can signal further downtrend ahead. By analyzing the weekly gold chart, we can see several signals of that incoming downside. First signal is the shooting star candle when gold reached the yearly high at 1347. That shooting star weekly candle pattern is confirmed by the following week when gold went down $40 and made a big bearish candle. After finding support at 1280, gold went up for another three weeks. However the week after appeared another bearish signal which is the bearish engulfing candle pattern that engulfs all three upside weeks before that. Even though last week candle looks like a doji candle pattern but it is still a red week when weekly close is lower than weekly open. This week candle as of the moment looks like a rejection candle. If this week closes in red, a likely further bearish downtrend ahead will be confirmed.
So we will keep watching for market action and wait for this weekly close. Have a nice weekend !