By Scott Silva
Editor, The Gold Speculator
7-31-12
Last week we examined the bullish symmetrical triangle pattern in gold
and identified the potential breakout points in this time-tested technical
indicator. We also looked at the Ichimoku Kinko Hyo indicators for gold to see
if their trend and momentum signals confirmed the validity of the chart
pattern. Were these indicators correct?
Well, time will tell, but there are signs that the price of gold has
broken out from consolidation, and may be poised for a move up. Let’s see
what’s been going on with gold.
Here is the symmetric triangle pattern we identified last week.
With it, we identified breakout prices of 1612 on the upside and
1559 on the downside. This week spot gold prices broke through 1612 on the
upper trend line. So does that mean we are on our way up? As my market making Zen
master always told me, “We’ll see.” His words never seemed to satisfy my need
for proof of any premise.
Here’s a chart as of yesterday’s
close.
Gold began its move up after the printing a hammer candlestick on July 24th.
After strong upward trading the next day, price action broke through the upper
trend line on July 26th, closing at 1614. The spot gold price
continued higher last Friday. Trading volume was significantly higher during
the bullish trading sessions.
As we know, symmetrical triangle patterns can signal continuation of the
preceding trend, or a reversal. That’s why some regard symmetrical triangle
patterns as neutral patterns. In the
case of gold, continuation would mean a move to the upside. A reversal would
indicate the start of an intermediate trend to the downside.
It is important then, to confirm the validity of any breakout. According
to conventional analysts, such as Edwards and Magee, a breakout pattern is
invalid unless accompanied by significant increase in trading volume. As indicated in the dark oval in the chart
above, trading volume was significantly higher during the bullish trading
sessions.
Well, wouldn’t that confirm we have a valid breakout? We’ll see, says the
Zen Master. Here’s why. Yesterday’s volume was down. And, price action produced
a solid hammer candlestick, indicating a tug-of-war between buyers and sellers
that ended on the sell side. So the validity of the bullish breakout from the
symmetric triangle pattern is not proved by volume beyond a shadow of a doubt.
Nothing in life, much less in trading commodities is certain. So we’ll
stick to the preponderance of the evidence here. Again, we rely on the Ichimoku and other
technical indicators to give us more evidence of what’s happening with gold.
It’s clear from the daily Ichimoku chart that gold has broken through
resistance, and is now trading above the cloud. And the projected cloud has
turned bullish (now shaded green). The Tenkan Sen made a bullish cross of the
Kijun Sen from below on July 26th. These are all bullish indicators.
The Chikou Span (green line), has moved above price action, which is bullish,
but is now in neutral territory (in the cloud). Were the Chikou Span to drift higher or
sideways, then all Ichimoku indicators would signal a strong buy for gold. The
separate MACD oscillator made a bullish cross ahead of the Tenkan Sen bullish
cross, as is typical for the this “predictor” indicator. Support is now 1604, with first resistance at
1642, then 1665.
Edwards and Magee may prove right once again that increased volume
confirms a breakout from a symmetric triangle pattern. I think price action
provides the best confirmation. And we will see shortly if the price of gold
can withstand another bout with the fantastic FOMC later this week.
Responsible citizens and prudent investors protect
themselves and their wealth against the ambitions of over-reaching government
authority and debasement of the currency by owning gold. Gold is honest money. Investors from around the world benefit from timely
market analysis on gold and silver and portfolio recommendations contained in The
Gold Speculator investment newsletter, which is based on the principles
of free markets, private property, sound money and Austrian School economics.
The question for you to consider is how are you going to
protect yourself from the vagaries of the fiat money and economic
uncertainty? We publish The Gold Speculator to help people make
better decisions about their money. Our Model Conservative Portfolio has
outperformed the DJIA and the S&P 500 by more than 3:1 over the last
several years. Follow @TheGoldSpec
Subscribe at our web site www.thegoldspeculatorllc.com with credit card or PayPal ($300/yr) or by
sending your check for $290 ($10 cash discount) The Gold Speculator, 614 Nashua
St. #142 Milford, NH 03055
No comments:
Post a Comment