Gold Technical Analysis: Bullion Back Down to Trading Channel’s Lower Boundary

Back on April 14, gold was on the verge of a major signal, trading as little as $10 away from the so-important $1380 mark. Let’s recap. Since 2013, the commodity has been forming a large inverse H&S pattern (bottoms – yellow ellipses; neckline – yellow trendline in Figure 1; note GLD shown). More recently, in 2018, gold has been trading in a horizontal trading range (bright blue horizontal trendlines).

Figure 1. GLD Weekly Chart

Recent Technical Developments

  • Earlier in March, the commodity completed a “mini” inverse H&S pattern (bottoms – white ellipses; neckline – white trendline; break above neckline – white arrow in Figure 2).
  • However, instead of breaking above the upper boundaries of the trading channel, gold formed an identical reversal pattern – this time pointing to lower prices (tops – orange ellipses; neckline – orange trendline). On April 20, gold broke below the neckline (orange arrow) and swiftly moved lower over the next few sessions. Given the size of both patterns, their targets were quickly met after each breakout.
  • On Tuesday and Wednesday (May 1 & 2), gold retested both the lower boundaries of the trading channel, as well its 200 SMA (yellow line), before moving higher over the next two trading sessions.

Figure 2. GLD Daily Chart

Implications

  • A break below the lower boundary of the trading channel will result in a short-term sell signal. Given the confluence of support levels (lower boundary of the channel and 200 SMA), a potential break below would have even greater bearish implications.
  • As gold has been oscillating within the $1,300 – $1,370 range for over 4 months, the break in either direction is expected to result in a swift move in the direction of the breakout (Figure 3; commodity shown). More specifically, if gold breaks below $1300, a $1,230 downside target is obtained. To the upside, a break above $1,370 will result in a minimum $1,440 target.

Figure 3. Gold Daily Chart

Outlook

  • Neutral within the $1,300 – $1,380 range (using 2016’s high as a trigger and not the high of the trading range).
  • Short-term bearish below $1,300.
  • Short- and long-term bullish above $1,380, as a break above 2016’s high will activate the previously discussed longer-term upward targets.

Featured image courtesy of Shutterstock.

Author:
http://www.linkedin.com/in/konstantindimov