Last week we talked about two scenarios of a retest of neckline of the head & shoulders pattern. First scenario was that price closed above neckline then there would be a possible failure of the H&S pattern, and price would continue to upside. Second scenario was that price failed to close above neckline and turned down from neckline, then short term trend stayed bearish, and price would go down hard. We also sent you a gold alert telling you to add short positions at two sell zones, 1280-1283 and 1285-1288. We, however, warned you that if we had a daily close above neckline of H&S pattern, we would stop our short positions and re-evaluate the market trend. Otherwise, we would still be happy to go shorts on gold.
What happened in the last few days was that gold went up to test neckline of the H&S pattern but failed to have a daily candle close above it. So the second scenario proved to be the case here. It is amazing how we were accurate to predict such moves like a couple of weeks ago. The first thing about how accurate our analysis was is that we said we expected a meaningful upside bounce after gold touched important support at 1267. Gold went down to touch 1267 and then bounced back to 1288. That was a move of $20 per ounce. The second thing about how accurate we were is that we identified two sell zones, 1280-1283 and 1285-1288, for you to add short positions. It was because we believed after bouncing up, gold would go down to test 1267 again and eventually break under it. And we preferred to sell on rallies instead since the short term trend remained bearish. Gold went up to 1288 just to turn down hard to 1272 as of this analysis is written. So if you have followed us all the way, you would have been aware of recent market moves and able to catch some opportunity to make profit.
Now the second scenario that we mentioned last week turns out to be the case. What is next for gold ? Of course like we mentioned in our second scenario that as a typical textbook’s example of the H&S pattern, price will go down hard after successful re-test of neckline. We think the next destination for gold is around 1250-1255. However, gold would have to take out a few important supports on the way down. Take a look at the daily chart above. We draw an important support zone that we think gold will have to break through first. That support zone is around 1267-1270. It is still the important support that we mentioned like two weeks ago. It is support from the uptrend line. It is also the last week’s low. That uptrend line proved to be a strong support last week when gold touched 1267 and rebounded to 1288. Now we are facing this support again. If gold manages to break through which we think very likely, gold will go down to 1250-1255.
In the second daily chart above, we identify three important support zones that we think gold might reach in the next few days or weeks. The first support zone is like we mention above, around 1267-1270. If gold breaks through 1267-1270, we will likely see gold test second support zone. This second support zone is at 1253-1258. Please note that the 200-day moving average is at 1253 which is also 61.8% Fibonacci retracement of the upside move from 1196 to 1346. And by using Fibonacci Extension, we can see the 100% Fibonacci Extension is at 1258. Therefore, this second support zone 1253-1258 will be a major important zone. Lastly, if gold takes out the second support zone, it will go down to test the third support zone. It is somewhere near 1240, which is a 1.618 Fibonacci Extension. Those are the daily support zones that we look forward to seeing in next week or so.
After adding shorts at two expected sell zones, our short posy still looks good and in profit. We will see how gold reacts at the support at 1267-1270. We look forward for gold to give up that support eventually and go down quickly to second support. If it does, we might look to take profit off 1/2 to 2/3 of our short positions at the second support zone and let the rest try out the third support.