Gold made a yearly low at 1271 last week, just 1 dollar short of our expected support at 1270 as we suggested in our last analysis. Since our support has not been hit, we still assume that gold would go down and reach our support at 1267-1270 later this week or next week before some kind of meaningful retracement will happen. In our last analysis, we also identified two resistance areas where you can add short positions. The first zone is at 1280-1283. The second zone is at 1286-1289. Gold has rebounded a bit to just under 1280, but it seems to struggle to overcome that resistance. Now it is trading at roughly 1275.
However, in the beginning of this week we have spotted a pattern that could possibly lead gold to break above 1280, and try to test our second zone at 1287-1289. Take a look at the above 1-hour chart. There is a possible “inverse head & shoulders pattern” with a neckline at 1280. If gold has a breakout above the neckline, the pullback will continue to 1287-1289. The MA(200) on the 1-hour chart also stands at 1287 and last week’s high is at roughly 1290. Double bearish divergence on MACD indicator also suggests some kind of further upside retracement. Because the main trend is still down, we look to sell on rallies. So if you want to add short positions, that will be our target zone. Meanwhile if gold fails to break above the neckline and trades below 1271, the “inverse head and shoulders pattern” will be invalid. That could mean the downtrend will continue.
The best strategy for this kind of pattern is to wait for a clear breakout above 1280 and place a buy order targeting the next resistance area at 1287-1289. However if you want to do a counter trade, you can take small risk by going long at 1273-1274 with a tight stop loss under 1271 and targeting 1287. With this kind of counter trade, the risk is small but potential profit is 4-5 times the loss. Still the pattern is not confirmed yet so it totally can fail. Our assumed “inverse head & shoulders pattern” will fail if price trades below 1271. Therefore, placing a stop loss under 1271 is to stop our counter trade in case our assumed “inverse head and shoulders pattern” fails apart.
|In the daily gold chart above, we draw a blue uptrend line that has
formed since August 2018 when gold traded as low as 1160, up to
February 2019 when gold traded as high as 1346. We also draw a brown
downtrend line that has formed since gold made a high at 1346 and went down until this moment. We believe the blue uptrend line will act as
daily support and the brown downtrend line will act as daily resistance. Now it looks like gold is coming down to that uptrend line that acts as
strong support. We can see in the chart the support area on the uptrend
line is around 1263-1267. That is very close to our expected support also
at 1267. Both MACD and RSI indicators postures are bearish indicating
further weakness. So it is very likely that we will see gold to try to test
support at 1263-1267 soon. We, however, expect that the uptrend line
would provide good support and gold would bounce back from that
uptrend line to test resistance at the downtrend line. As long as the
current trend is down, we think gold would finally turn down from that
downtrend line and eventually break down under the uptrend line to
lower supports at 1250 or even 1240.
|For now we will keep watching price action. If gold goes down to 1267
and holds well at our support, we will look to take some profit from our
short positions, and maybe do a counter long trade with confirmation. If gold goes above 1280 and tests resistance at 1287-1289, we will look to
add short positions also with reversal confirmation.