Friday, May 4, 2012

The intermediate term trend in Gold has changed...

... for the time being.

In my opinion gold has now put behind it the bearish downward sloping "channel".  Is this bullish because it is no longer bearish?  No.  What gold has developed is a solid "Symmetrical Triangle" which is neutral.  Symmetrical triangles can be continuation patterns or a reversal patterns.

What is a symmetrical triangle?  A pattern that shows a tightening in the battle between the Bulls and the Bears.  This pattern can clearly be seen on the daily chart below where I have drawn grey trendlines.  The downward upper sloping trendline in the triangle shows increasing supply with each rally.  The rising lower trendline in the triangle shows increasing demand with each selloff.  The bulls and the bears get to a point where supply or demand depletes or runs the other over, and that sets up a new trend in many cases.

From my perspective this is a picture of tension building in the "open interest".  Gold may not be looking back at $1,650 for some time if there is an "igniter move" of price and volume off the triangle with strong hands building on the winning side of the contract.  This is not a prediction but based on my own analysis and understanding of "probabilities".  It doesn't matter to me what "wave", "pivot", or some level of "retracement" gold signals.  What I am most interested in is correctly identifying the current phase of development in the auction.

Gold has changed from intermediate term bearish to neutral.  The following move out of the triangle is going to determine in my mind whether gold returns to a bearish bias or a bullish bias and there is only one side I want to be on in that case. 

A breakout to the upside might have me committed for the near/intermediate term.  At this time should there be a breakout to the upside, I might use an initial stop loss down beneath today's low and the rising trendline support.  This would be about 50 points in risk from that point, and everything is subject to change.  If the breakout to the upside "fizzes", I may shut it down immediately and look to re-enter. 

I will be looking for an intermediate term and perhaps a longer term trade in gold.

Let's take a look at today's Commitments of Traders Report before I post the chart.  The commerical traders increased their net short position 10,766 contracts for this reporting period.  Open interest increased 16,583 contracts which adds steam to the inside of the triangle pressure cooker.  Gold took a dive since the cutoff for this report making next week's COT report more interesting if we stay inside the triangle till Tuesday's close of the Comex.

(Click on chart to expand)


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8 comments:

  1. Scott,
    very good analysis-i agree that gold has just been moving sideways ,not even breaking out above the previous high point of a few weeks ago.Like a lot of the charts recently have been moving sideways and breaking down.At least for me i would not be a buyer here at this time as you said until we see a break out one way or another

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  2. Thats awesome...!! great opinion....

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  3. I don't understand how charts can be meaningful when the market is severly manipulated on a daily basis '

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    1. I strongly believe a trade plan must be built upon our beliefs. In my opinion the study of the auction is the most objective way to view market behavior. Perhaps you shouldn't trade or even look at the charts if you feel that strongly about it?

      Thanks for the comment anonymous.

      Scott

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  4. The Symmetrical Triangle is a true reflection of current market positioning and is well explained in this article. I also commend the writer who uses factual data to make conclusion rather than personal opinion.

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  5. Interesting you have no response to Anonymous . The problem with analysis is that it cannot factor this in, be it gold and even more so silver

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    1. Can a man spend some time on a Saturday away from his blog? See answer above.

      Scott

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