Gold continued to consolidate in a mild correction off the 1,763.24 high. There are a number of indications reflecting underlying strength of the seven-week uptrend.
The retracement to date has been shallow, approximately 50% of the shorter uptrend from the January 25 low. But, nowhere close to a 38.2% retracement of the full uptrend. Support around 1,704-05 has been hit several times, and has held so far. The most recent test on Thursday stayed above the previous low in the retracement. Even though Gold has broken below the 21 daily exponential moving average (ema) several times, it has managed to close above it each time.
Daily
From the bullish perspective, Gold has formed a flag pattern, with a breakout first signaled on a break above 1,737.23, and confirmed on trade above 1,763.24. This pattern is generally considered bullish as it follows a prior ascending trend. It’s marked by two downward sloping parallel lines on the chart. A conservative target from this pattern is 1,818.97. However, a breakout needs to be triggered first before the pattern gives a valid bullish signal.
Significant potential resistance lies around the 1,802.92 swing high from early-November 2011. A close above that level is the first confirmation that the almost six-month correction in Gold could be coming to an end. That doesn’t mean that Gold goes straight up from there, just that the probability of higher prices over time has increased.
Daily
Alternatively, the flag/retracement may not yet be complete and the pattern may continue to develop leading to a deeper retracement or a completely different price pattern.
A descending triangle has now formed inside the flag with the horizontal support low at 1,704.4. Trade below that price signals for a deeper retracement. Gold could then continue to consolidate lower inside the parallel lines of the flag, or it fails by breaking below the lower channel line.
The 61.8% Fibonacci retracement support of the short-term uptrend is around 1,692.70. The next lower support area, 1,573.63 to 1,671.09, comes from the confluence of two Fibonacci measurements, the 78.6% level of the short-term trend, and the 38.2% retracement of the full uptrend. Support of the 200ema is around 1,656.
Crude Oil
Oil broke out of a five-week downtrend last week closing at the top of a three-month range. Watch for bullish follow-through above $103.73. Resistance could be seen around an area of Fibonacci confluence, from approximately $105 to $106.50. That price cluster is followed by $109 to $110, the next Fibonacci resistance zone.
Daily
A close above $103.73 also triggers a breakout of a bullish ascending triangle, with a target of approximately $114. That target is right around the previous highs from April 2011. It remains to be seen whether the target can be reached, and how Oil reacts around the lower resistance levels will give some indication.
On the downside, Oil could find resistance around current levels and retrace. Weekly support is at $99.34, which is close to a 50% retracement of the short-term trend of the past two to three weeks. The 38.2% retracement support is around $100.6.
EUR/USD
The EUR/USD has continued a consolidation phase begun several weeks ago. It failed to follow-through to the upside and broke below the previous recent lows last week, as well as the 200ema on the 4-Hour chart. A 50% retracement of the prior rally has been completed with the pair bouncing from that support at 1.2973. Resistance was found Friday at the short-term downtrend line.
4-Hour
Short-term, strengthening is signaled on a break above 1.3221, with trade above resistance around 1.3321 needed before signaling a continuation of the uptrend. If that happens then watch for the next resistance around 1.3430.
Support of the consolidation phase is now at 1.2973. Further down is support around 1.2877.
S&P500 Index
The S&P500 Index rallied once again last week and closed strong near the high. It’s now only 1% away from rally high of 1,373 off the March 2009 lows. A break above 1,361, last week’s high, gives another bullish signal. If the index can then get above 1,373, watch for resistance around 1,389.66, the 78.6% retracement of the downtrend from the October 2007 high.
Daily
At this point the uptrend remains in place until trade below support around 1,334.25. The 21ema would then be broken as well as the recent swing low. Then, watch for support lower around 1,300, the 55ema, followed by the 1,281 price area.
Weekly
Natural Gas
Natural gas may be in the process of finding a bottom. A double bottom trend reversal pattern has formed off the $2.22 low with the short-term internal trend line broken on Friday. The double bottom breakout is triggered on a move above $2.83.
Daily
For further details please contact: Bruce Powers, CMT
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Head of Research & Analysis Trust Securities Dubai, United Arab Emirates
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