Technically Speaking

Gold Bears Lie in Wait

Source: DTN ProphetX

COMEX gold closed lower last week after once again failing to move beyond its series of weekly highs near $1,365.40. While I continue to see a bearish weekly chart, certain rules and old sayings are starting to create a shadow of a doubt.

First, there's an old market belief of "triples are always taken out". I don't know where this started, but its lasting power would seem to indicate there is some validity to the meaning. Take a look at the accompanying weekly chart for gold and you'll see three tops at $1,362.40 (week of September 5, 2017), $1,365.40 (week of January 22, 2018), and $1,364.40 (week of February 12). While not an absolutely perfect triple-top pattern, being within $3 is pretty close, and if so does it hint at a bullish breakout to come? Note that both interim lows of $1,238.30 (week of December 11, 2017) and $1,303.60 (week of February 26) were both tests of retracement support. If the more active June contract were to trade above the last two highs ($1,365.40 and $1,364.40) it would establish an upside target of $1,427.20.

There is also my market analysis Rule #4B: A market that can't go down won't go down. I've been looking for a substantial break in gold since the establishment of its secondary (confirming) bearish crossover by weekly stochastics the week of January 29. Yet the most active month has been unable to push through support. If this next sell-off, the one indicated by this past week's bearish close, fails to generate increased selling momentum Rule 4B might come into play.

On the other hand, if gold moves below its previous low of $1,303.60 it would be set for an extension of its secondary (intermediate-term) downtrend back to support near $1,243.30.

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