Gold Successfully Defends Critical Support

Let's take a quick look at the recent successfully defended support zone in gold and take a quick look at both the daily and intraday 120-min chart to see how support developed and what might be in store next for gold prices.

First, let's start with a view of the Daily Chart:

We're seeing mini-gold futures instead of a chart of gold as an index, so keep that in mind when comparing to the GLD ETF or other trading vehicle related to gold.

We see that the $1,075 level is a critical line in the sand between bulls and bears, marking the boundary line on the chart. 

If price remains above $1,075, then we can classify this move down as "just a simple and expected pullback in an uptrend" but if price breaks through the level, then we would expect sellers to continue the swing to the downside which could ultimately achieve the lower target via the bear flag in gold.

For reference, the $1,075 level - as seen here on the daily chart - reflects the following:

50.0% Fibonacci Retracement
Lower Bollinger Band
Prior Price Support (December 2009)
Prior Price Resistance (October 2009 - which becomes support)

It was expected that some sort of rally would materialize off the key support level, and that's what we're seeing currently. 

Let's now step inside the price chart to view the entire 'pullback' from the $1,200 level, as seen on the 120 minute chart.

A quick glance shows us the importance of the $1,080 and $1,075 support zone (highlighted).

We also saw a positive momentum divergence forming on the lower timeframes as price tested this critical support level. 

This chart serves as a great example on how to combine higher timeframe support (mentioned above) with a positive momentum divergence as seen on the lower timeframe chart - both of which argue in favor of support holding and an oversold 'bounce' rally as forming at the support level, which gives intraday traders a low-risk, high probability entry to play the bounce.

What now?

Price has successfully held a critical support area, broken through the 120min moving averages (which were serving as overhead resistance), and formed a new momentum high... all of which argues in favor of higher prices yet to come in the near future.  A retest of the $1,150/$1,160 highs is certainly a possibility if buyers continue to push price from here into that overhead (past resistance) price target.

Keep this in mind in the week ahead, but also be aware that the bias shifts to favor a completion of a bear flag which targets the $1,000 level should sellers retake the upper hand and push price under the $1,075 critical support level any time soon.

 

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Corey Rosenbloom, CMT
Afraid to Trade.com