Technicals: Structure and Support Breakdown Update for Gold Prices (GLD, IAU, DZZ, GDX, UGL)
Corey Rosenbloom: One of the big headlines of today was the sharp decline and breakdown under chart-based support in Gold.
Let’s take a look at what happened, what levels are important here, and what current structure reveals.
First, the intraday 30-min “Structure” Chart of Gold:
When we’re assessing “Market Structure” or “Swing Structure,” we simply note the progression of price highs and lows to create a reference.
Take a moment to review a recent “Multi-Timeframe Structure” lesson using Silver to highlight the concept.
We use structure to determine uptrends, downtrends, or – in the case of gold’s intraday chart – sideways trends.
On the chart above, we can see gold “building” a sideways structure (trend) with clear converging ‘Symmetrical Triangle” trendlines.
The immediate levels going into today’s session were $1,630 for lower support and $1,660 for upper resistance.
Pre-market, Gold broke the ’structure’ and an intraday trend day or sharp sell-off resulted from the initial movement out of the Triangle structure.
With the intraday triangle image in mind, let’s pull-up the perspective to the Daily Chart:
As I’ve been highlighting to Weekly Inter-market Members lately, Gold has been bouncing off the short-term $1,620/$1,630 level and failing (giving short-term retracement entries) into the overhead 50 day EMA.
Today’s session broke this pattern that developed in March and now the market faces a critical “Make or Break” support test at the $1,600 round-number easy reference line.
While $1,600 is easy to remember, it’s also an important polarity level, serving as support multiple times as seen with the horizontal yellow highlight above.
Buyers continued to step-in to support (purchase) gold at the $1,600 level with the exception of a two-swing breakdown in December 2011.
Keeping it very simple, $1,600 is thus the key “Bull/Bear” reference level – gold has a bullish bias while price is above $1,600 or else a bearish bias while under it.
A continued sell-off here suggests $1,550 or even $1,525 would be the next support level (or target price if you are short-selling under $1,600).
Gold’s Momentum/Volatility Cycles
I also wanted to highlight the persistent “Momentum Compression” (almost like a triangle pattern) in the 3/10 Momentum Oscillator.
Periods of price expansion or ‘big impulse/trending’ moves tend to emerge from low-volatility or compressed periods in price.
Stated differently, price in general tends to alternate (rotate) between sustained periods of high then low (then high) volatility.
We would call the July to October 2011 period as “high volatility” which gave-way to the recent multi-month compression or reduction in volatility.
One would suspect a future higher volatility period would result, particularly if we see a breakthrough trigger under $1,600 (for the bearish side) or alternately above $1,700 (to the bullish side).
Nevertheless, while $1,600 may seem too simple to be a key level to watch, it is the important reference level for the immediate future.
Related: SPDR Gold Trust (NYSEARCA:GLD), ProShares Ultra Gold (NYSEARCA:UGL), iShares Gold Trust (NYSEARCA:IAU), PowerShares DB Gold Double Short ETN (NYSEARCA:DZZ), Market Vectors Gold Miners ETF (NYSEARCA:GDX).
My name is Corey Rosenbloom, CMT (Chartered Market Technician) trader, educator, analyst, and I am excited to share with you my experiences studying and trading the markets and to hear from you regarding your experiences, challenges, and frustrations, and successes. My goal is to create a community dedicated to reaching out to those who have been burned by the market or are anxious about risking their money to make money in the stock, options, or futures markets. Together, we can share strategies and learn how to overcome crippling fears that keep us from achieving our highest potential.