Gold futures have settled with moderate gains on the day. The most active August contract closed at $1250.90, up approximately $5.10. This gain occurs immediately following two trading days in which the lows have been at the 200-day moving average, and their respective closing prices were below the 61.8% retracement.
As such, the last four days, as seen through the eyes of Japanese candlesticks, can be identified by two distinct candlestick patterns. Both patterns indicate support and a potential bottom concluding the recent price decline.
The second pattern identified is a multi-candle pattern requiring a minimum of four candles, simply titled a “tower bottom.” A tower bottom occurs at low price levels after a correction. At some point in the correction, typically when the market becomes oversold, a series of equal lows will emerge, creating a short-term bottom. This will be followed by a bullish candle, which will complete the tower. It is the formation of the long candles before and after the tweezer bottoms that resemble a tower structure. This corresponds loosely to Western technicians “V” reversal pattern.
Recently we have noted that the current correction in gold was reaching critical areas. How gold acted at these areas would define our models and expectations for the future price of gold. The two key technical studies we were focusing on were the Fibonacci retracement of the recent correction, as well as current pricing in reference to the 200-day moving average. Simply put, both prices together represent a technical “line in the sand,” so to speak.
The fact that gold prices traded to the 200-day moving average, but did not break below that is significant. The fact that gold prices opened just above the 61.8% retracement of the prior rally is also significant. More importantly, these two technical studies, when combined with candlestick patterns, have clearly indicated a high probability that gold prices have in fact found support and will move to higher ground from this price point.
As you know over the last week and a half we have been looking at the real potential for the current correction to conclude.
As gold prices approached the 200 day moving average, it was critically important to see whether or not that price point would hold or not.
As such over the last few trading days we have seen technical confirmation of support and then in evening trading session here (morning session overseas), we noticed a uptick in gold pricing. That completed two candlestick patterns that typically are found during key reversals in the marketplace. That was the final requirement needed to trigger a by signal.
Today's video report will detail the patterns that unfolded as well as a rationale for our current stop placement. On tomorrow's show as well as next week we will begin to discuss are exit strategy.