Tuesday, 6 December 2011

Gold...A study of recent price failure...continued

I posted last week about Gold and what i consider to be a very weak technical position from my point of view. As time goes on I am extremely wary of going against the trend ( after all, on the weekly chart its still intact upwards) and going against the vast number of pundits who all 'big up' the gold market both from a technical & fundamental point of view. Not only this but we are living in exceptional times where we can expect to see exceptional moves in markets. It often crosses my mind that most of the pundits who talk Gold up often have a vested interest in doing so and give numerous reasons either as part of portfolio diversification/equity hedge (and you know what i think of this idea), Bullion sales etc. The bottom line is that they must get their clients (be they private or institutional) into something apart from bonds/treasuries and equities in order to make a living and equities are hardly attractive at the moment and Gold is an easy sale to make....be honest if you had a large portfolio would you not have 10-15% in Gold ( ETF's or futures or bullion coins etc) and in such times as now would you argue with your advisor if he suggested you raise that to 20%?
Anyway, i am sorry to tell you i do not have the answer as to where Gold is going BUT this looks and feels and smells like a technical series of rounding tops being formed. Please take a few minutes to look at these charts:
1. You can see the reaction line that i attribute to the current resistance to go higher and see how it has carried price lower in each 'breath' or cycle of the market.
2. I have included a chart form the previous post showing ( viz- a viz Andrews) my unorthadox fork where price has failed and suggesting it lacks the 'energy' to go higher.
3. From the 700$ area in Ocotber 2008 we have seen price top out at just over 1900$ and we have seen an exceptionally shallow retracement of .310 and if you take the whole of the bull move since 2000 this amounts to a measly .25 Fib RT only.

You may choose to tell yourself and me that this indicates a strong market and i would not disagree, however looking at the fork I have drawn and where price has previously found support i would consider that a break below 1680$ and below this centre line would be extremely bearish and we are coming back to this centre line as price cannot get up and over the reaction line. The problem with charts that have long sustained sharp moves up ( Cotton& Rough Rice come to mind) is that they are a nightmare to get to grips with as there is a shamefull lack of pivots to use and so it is difficult for me to get my long term forks drawn and thus the reaction and warning lines that oppose/support price.

Here below is the chart ( red arrow) with the original basic fork explanation from last weeks post plus a much lower set of forks and reaction lines but the long term RL is there as well if you look but sadly not differentiated by thickness etc. I have included two identical charts but they differ because one is log scale and the other is arithmetical... when dealing with reaction lines on charts this is essential to use both scales in order to find the true location of a reaction line on a chart as the lines 'move' depending on the scale.

Here below is the MT4 CFD chart but with an even lower time frame but all lines drawn automatically by a custom idicator after you select your 3 pivots for the fork. I am interested in todays new low pivot at around 1701 and what happens after this new higher low is formed.

To be honest i have no position so care not one way or another if it goes up or down but have time since I am out of EURUSD until we trend again . The bigger time frame E-Signal charts are of greater importance for me as they show the current picture and the short stochastics on the weekly chart also interest me. Remember any pattern with price is theoretically possible and this goes for the short stochastics ribbons as well so even though they look like water about to fall over a waterfall doesnt mean they will carry price with them....also the long stoch is no longer pointing down and the 21-10-4 stoch has narrowed its band showing me the trend is weakening... all telling me that it would be crazy to go short. Where does this leave me? It seems that a break up and through the reaction line at 1740-50 would be a longer term buy signal if we saw some daily close above it and would need closer examination. We have held at 1701 and this is a healthy sign but we may just pop up to the reaction line and fail again and in the back of my mind I keep coming back to this topping out pattern.

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