Gold – 2 Aug

Another all time high in gold and the stealth move is getting a lot less stealthy. An enormous white candle was placed on to the chart by the market during what is usually the doldrums of the year for gold. All of the technical studies are in over-bought territory with price now above the Bollinger band, which effectively becomes resistance with no previous highs above. Support is at the 1610 area where previous swing lows lie and the 18 day moving average converging, currently at 1599. Another support zone exists around the 1585 level, with the Fibonacci 38.2% retrace level lying between support levels.

Fundamentally speaking, the argument for gold is unassailable and this market is giving few traditional buying opportunities, every minor pullback is being bought. Traders will have tough sailing the farther we get into this thing with the risk in being out of the market during a break rather than in the market during a correction.

Here is a 6 month chart showing support levels.

The longer term 1 year chart again shows the powerful uptrend in gold. We are now at the upper limit of a trend channel that is over a year in the making and the question is where and when the inevitable correction comes. A good place to answer that question is on the weekly chart.

The weekly chart can give us major clues as to when a correction is upon us and and when it is advantageous to re-enter or make purchases to add to existing ounces. First, look for RSI to be firmly over-bought. We currently are in over-bought territory with a reading of 74.26. Previous strong moves have driven this indicator to 80, so it appears we could go somewhat higher looking at just this one study. Now look at stochastic which is a leading indicator (highlighted in yellow.) Look at the stochastic cross of the fast line across the slow line in an embedded condition (both lines above 80 for 3 weeks or more). When this occurs it is likely a correction is coming and it occurs before the bearish cross of the fast line across the slower line on MACD. In this way you can lock in gains earlier than using just a MACD cross.

Now as to when you might jump in during a correction. First, look once again to RSI and notice that it hasn’t penetrated 50 to the downside. In fact it often corrects reverses at 60. So when RSI approaches 60 a buying opportunity is likely presenting itself. For further verification, look at a stochastic cross (blue arrows). Finally, notice how price reverses when it hits the 18 week moving average (dotted gray). So as price approaches the 18 week MA, and RSI is approaching 60, and a stochastic cross is made, buy, buy, buy!

 

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