Home—Online trading—Spread betting explained—Spread betting blog—Gold retreats – but is finding support
Oct 17, 2012, 03:12
Posted byJohn C Burford
Once again this morning, I am faced with several alternative markets to cover – the euro, the Dow and gold are all shaping up nicely along their tramlines, Fibonacci levels and Elliott waves. And our occasional friend the Aussie dollar is doing likewise.
But gold looks particularly interesting to me this morning… so gold it is.
In last Friday’s post, Gold is at a crossroads, I pointed out that on Friday morning gold was truly at a moment of decision. It had two clear options: either the three-wave pattern off the $1,796 high was the extent of the dip, and we could expect a resumption of the bull market; or the pattern was a ‘continuation’ pattern down and new lows would beckon.
It was truly at a moment of truth, heightened by the extreme bullishness of speculators (as revealed by the COT data – more later).
Well, later on Friday I got my answer:
(Click on the chart for a larger version)
The market attempted to rally above my tramline in the $1,770 area later on Friday, but failed and by Friday’s close, it had retreated down to my lower tramline at $1,750.
That was a clear indication that we had a continuation pattern on our hands and new lows lay ahead.
With the weekend upon the markets, that gives us all the space to examine our trading plans in detail without market noise distracting us. I recommend taking some time then to gather your thoughts.
“But isn’t that a powerful example of how tramlines represent areas of resistance for rallies and support for dips? I thought you would like that one!”
My line in the sand was the area in the pink bar, as a rally to this area would probably indicate new highs ahead.
So there we had a clear plan: short near the upper tramline with a protective stop (to reverse to long?) in the pink zone. That was a relatively low-risk trade.
Let’s see how things developed:
Here is the tramline trip I have been working with on the rally segment. Yesterday, heavy selling brought about a plunge below my lowest tramline – and crucially, a move below the major chart support low at the $1,740 level (blue-grey bar).
It was beginning to look as if we have seen the highs for this year at least and we had started a bear market.
But hold your horses! Before we go galloping along the bear’s trail, I have a few thoughts that put the bearish case into question – at least for now.
Let’s see what they are.
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The move down off the $1,796 high can be counted so far as an A-B-C or as a 1-2-3 in progress.
If an A-B-C, it would imply a rally extension – bullish.
If a 1-2-3, then wave 3 should extend down – bearish.
This morning, we had a move up off yesterday’s $1,730 low as it attempted a tramline kiss. And note the previous kiss on the centre tramline. This indicates my tramlines are still valid.
This rally could mean yesterday’s low is actually wave C.
Here is a closer look:
I have a superb lower down-sloping tramline with a prior pivot point (PPP) and several touch-points. And note the large positive momentum divergence at the $1,730 low – that is short-term bullish action, so the present rally is not unexpected.
And as I write, the market is challenging my upper line – just as it did last Friday!
So, will history repeat?
Note that we are at the crossing of two important tramlines and the Fibonacci 38% retrace – a triple threat to the rally.
This means that there is heavy resistance in the pink zone. Bulls watch out!
But if the market can overcome this resistance, my line in the sand is in the blue bar above the previous minor high at $1,770. That would swing the odds in favour of new highs soon.
OK, so now I have my alternative scenarios this morning.
If we are in a new downtrend, confirmation would come if the market can break below the $1,730 level. That would indicate we are in a long and strong third wave down – the textbook case.
So these are the two critical levels I shall be watching – $1,730 and $1,780.
But already, the bulls must be getting increasingly nervous as yesterday, the market had taken back over $60 off the top.
Now, long-term investors would probably not be shaken out of the tree by this dip. I write about swing trades, and a $60 move equates to a £6,000 credit or debit on a £10 spread bet. I can be confident that this would grab the attention of most swing traders, especially if in debit!
And finally, does the latest COT data reveal anything significant?
As of 9 October, the large speculators had slightly increased their longs, while the small speculators had reduced their longs more substantially. But not much there – I will be interested in seeing the next data set, and would be willing to bet there have been larger long liquidations from all speculators.
• If you’re a new reader, or need a reminder about some of the methods I refer to in my trades, then do have a look at my introductory videos:
The essentials of tramline trading
Advanced tramline trading
An introduction to Elliott wave theory
Advanced trading with Elliott waves
Trading with Fibonacci levels
Trading with 'momentum'
Putting it all together
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Published in Spread betting blog
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Leave a comment
(17 October 2012, 05:57PM)
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I love your articles John and read then all with interest.I wish I understood them. What I mean is, I am all new to this so it is both fascinating to read your forecasts and to also read your reasoning. I will watch the pink and blue zones with interest in the coming days.Shame there isn't a direct link from the homepage to your articles.
(18 October 2012, 01:12PM)
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There looks to be a large cup and handle formation almost complete in the gold chart just now with the first rim back in March, the cup completed in the beginning of October and the handle being formed right now. Cup and handle is supposed to be a bullish pattern. Would be interested if you have an opinion on that John?
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