Carefully Watching Initial Breakout and Resistance In Gold Prices (GLD, IAU, PHYS, SGOL, DZZ)

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July 31, 2012 12:10pm NYSE:DZZ NYSE:GLD

Corey Rosenbloom: We’ve been following the long-term Support Shelf in Gold near $1,550 along with the declining “triangle” trendline,awaiting the possibility for a breakout in gold prices.


What started as an initial triangle break seems to have stalled at the first resistance target, so let’s update the charts on Gold and highlight the key area on which to focus.

First, the broader Daily Chart perspective:

For Weekly Intermarket Members, I highlighted the recent “Triangle Within a Triangle” pattern (a Symmetrical Short-Term Triangle within the broader Descending Consolidation Triangle) and last week resulted in an initial breakthrough of the shorter term triangle pattern as price successfully rallied to the first resistance target near $1,630.

You can see the shorter-term triangle clearer on the lower frame charts below.

To recap, price has been supporting repeatedly off the $1,550 zone yet resisting/failing (reversing) at the declining upper resistance level to form a broader Descending Triangle pattern.

In addition, the falling 50 day EMA served as resistance recently, yet price (buyers) broke through both of these levels last week for an initial breakout rally.

However, the rally so far has stalled at the prior price resistance near the $1,640 boundary which is the level on which we’re focusing currently.

Quite simply, a further breakthrough above $1,640 keeps the bullish fuel going for a larger breakout possibility, but in the meantime, we’ll continue respecting the price resistance levels as they exist.

Let’s zoom-in to the Hourly Chart for a clearer perspective of the recent developments:

I highlighted the broader trendline as blue and the shorter-term “Symmetrical Triangle” pattern with green.

Last week saw an initial power-break (gap) above $1,600 which resulted in a continuation rally back to the $1,640 prior resistance highs as the “Bull/Bear” Pivot Point to highlight this week.

We also see the respective “Momentum Compression” (as seen on the Daily Chart as well) which tends to occur during a clear consolidation/contraction phase in price (often ahead of some sort of breakout yet to come).

We can pull the perspective in even closer to the 15-min chart to highlight recent developments in momentum:

Using the 3/10 MACD Momentum Oscillator (or standard Rate of Change), we can see corresponding negative momentum divergences with “Arc” rally phases in price, particularly into the falling resistance trendline areas on the bigger picture.

Similar “Arc Reversals” have occurred in mid-June and early July, and the potential for another “Repeat Pattern” exists as we turn the corner into August.

For short-term traders, the unbiased game-plans focus on what happens at the $1,635/$1,640 area:

Pattern Continuation (Bearish): A Repeat Situation (Outcome) would result in another sell-off/retracement to target the lower rising trendline, currently extending near $1,570 to $1,580;

Breakthrough Outcome (Bullish): However, a “busting” of these divergences and a further breakthrough/bullish impulse above $1,640 could trigger yet another wave of impulsive buying (and short-covering) which would open gold to higher targets including $1,660, $1,700, and beyond.

As always, if you are trading or analyzing gold prices, continue to monitor real-time developments against this backdrop and key levels.

ETF DN Related Tickers: SPDR Gold Trust (NYSEARCA:GLD), iShares Gold Trust (NYSEARCA:IAU), Sprott Physical Gold Trust (NYSEARCA:PHYS), ETFS Gold Trust (NYSEARCA:SGOL), PowerShares DB Gold Double Short ETN (NYSEARCA:DZZ).

Written By Corey Rosenbloom, CMT From Afraid To Trade

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.


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