Verification of an earlier breakdown or something more?
In today’s gold price forecast, I decided to share with you my insights from Friday’s Quick Gold Alert. Have a nice read!
Technical Picture of Gold
Looking at the daily chart, we see that although gold futures moved higher during yesterday’s session (and even closed the red gap from Tuesday), the overall situation in the short term hasn’t changed much as the bulls didn’t manage to invalidate Wednesday’s breakdown.
Additionally, the futures are still trading under the previously broken upper border of the orange channel and the upper line of the purple rising wedge, while the sell signals generated by the daily indicators remain in the cards, suggesting that another attempt to move lower is just around the corner – especially when we factor in a small pro-bearish gap ($2,553.40-$2,560.30) that appeared on the chart earlier today.
Connecting the dots, I believe that yesterday’s comments and downside targets remain up to date also today:
(…) At this point someone might say: ok, but the price increased once again earlier today.
Yes, but as you see it is still trading under both mentioned lines, which suggests that today’s upswing can be nothing more than a verification of yesterday’s breakdown (in other words, as long as there is no successful comeback above them all upswing will be just verifications of the earlier breakdown).
Additionally, please keep in mind that gold futures also remain under the previously broken upper border of the orange channel and the upper border of the purple rising wedge, which together serve as additional resistances and block the way to a fresh peak.
(…) Do the bears have something more on their side?
Yes - the sell signals generated by the daily indicators (the CCI and the Stochastic Oscillator).
So, if this is the case, and today’s upswing turns out to be a verification of the breakdown (in other words there will be no daily closure inside the mentioned formations), it will be a strong pro-bearish signal, which can translate into a bigger downward move in the following day(s).
How low can gold futures go?
Before I answer this question (…), let’s check how the recent price action affected the 4-hour chart.
From this perspective we see that yesterday’s breakdown under the lower border of the black rising channel opened the way to lower prices.
However, despite this encouraging signal, the 61.8% Fibonacci retracement (based on the last upward move (…)) managed to stop the sellers and triggered a rebound, which formed a pro-growth candle with a prolonged lower shadow (a hammer formation) on the chart.
Additionally, the CCI and the Stochastic Oscillator generated buy signals, giving the buyers reasons to act.
As a result, gold futures extended gains and approached the previously broken lower border of the black rising channel, which means (as I wrote earlier) that as long as there is no invalidation of yesterday’s breakdown, we should treat this upward move as nothing more than a verification.
What does it mean for the futures?
If the bulls do not manage to climb above the lower line of the formation, we’ll likely see a reversal and further deterioration in the coming day(s).
So, how low can gold futures go (based on the 4-hour chart)?
(…) In my opinion, if the gold bears show their claws once again, the first downside target will likely be the mentioned 61.8% Fibonacci retracement and yesterday’s low of $2,528.05, which is currently intersected by the green rising support line based on early-Aug lows (the lower border of the green rising channel about which you could read in previous alerts) (…)
If this area is broken, the next downside target will likely be the green support zone based on the early and mid- Aug. peaks (…).
Summing up, gold bears finally broke under the lower border of the purple rising wedge and the lower line of the black rising channel, which opened the way to lower prices. Although their opponent managed to push the futures higher earlier today, I believe that as long as there is no invalidation of yesterday’s breakdowns (no daily closure above these key lines) all upswings are nothing more than verifications. Additionally, daily indicators generated sell signals, which together with three other higher resistances (the upper border of the orange channel, the upper line of the purple rising wedge and the red gap formed on Tuesday) suggest that further deterioration is likely just around the corner. Stay tuned.
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Anna Radomska