Gold – 29 Dec

Paper gold may be placing a bottom, although it will be hard to call it in the traditional manner because the volume is so light due to the holidays. A nice looking intraday reversal occurred and painted the chart with a respectable hammer candle, a widely observed reversal indicator. Also, we have divergence on the chart illustrated with the blue trend lines on the RSI, Stochastic, and MACD histogram. Although a lower low was set in price, lower lows were not established on these technical studies and that can be an indicator that reversal is at hand. We need to see follow through today with a higher close to confirm divergence. In short, if I was a trader of paper (I am not) I would be leaning toward a short term reversal. The longer term charts suggest a long term low may be in.

Price found support around 1535 and you have to go to the expanded daily chart to see the next level of support that comes in around 1480. Resistance is the last swing low at 1562, then the 1600 area. Price is currently below all the important moving averages in order from shortest to longest duration, the optimum bearish setup. It will take a significant move to overcome the bearish posture of this chart and to get price above the key moving averages. A move above 1643 would neutralize the current intermediate downtrend that has been in place since the 1804 swing high. An early indication matoy be when price breaks above the depicted red trend channel. RSI is over sold and showing divergence. Stochastic is over sold, showing divergence, and will likely embed (3 days below 20) and technicians will see rallies as selling opportunities as long as both lines stay below that level. If divergence is confirmed today, the embed will be short lived and a cross above 20 targets the nearest moving average as resistance, in this the 18 day moving average at 1635.

A longer term down trend will be intact until the swing high at 1716 is taken out to the up side. An early indication of this possibility will be a sustained break above the depicted price trendline and the trendlines (blue) on RSI and MACD.

The weekly chart shows nothing unusual has happened yet and we are still on trend with price right at the bottom of the trend channel. A higher close today will put the body of the candle right on the lower line of the depicted trend channel with a wick hanging below. If support fails 1480 looks real likely, and then the Fibonacci 38.2% retrace will support at 1446. The next level of moving average support would be the 100 week moving average currently at 1413. That last moving average has not been breached since the Fall of 2008. RSI is below the blue line that has provided support for some time and stochastic is as over sold as it has been since February 2010.

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