Gold Reversal Pattern Fails
Daryl Guppy | Sep 25, 2018 13:06
Originally published by Guppytraders.com
Six weeks ago we suggested that traders who went short gold in May were beginning to consider covering their short positions. The consolidation over the past few weeks has triggered short covering but it has not encouraged new long-side positions. Here’s an update on the developments.
When the gold price rebounds it trends to do so rapidly without any consolidation activity. The gold price is characterised by trend rebounds from pivot point lows. These are steep and rapid rebounds that have the characteristics of a short term rally but also have a habit of developing into longer term sustainable trends.
This has not developed. Gold did make a plunging low in late August with a dip to $1168. Historically dips like this have been followed by a rapid rebound. This has not developed. Instead there has been a period of sideways consolidation.
Evidence of a potential pivot point rally rebound includes two features. The first feature is a slowing of downward momentum. The range from low to high for the week is significantly smaller than the previous weekly ranges.
This did develop.
The second feature is a fast rebound with a significantly larger weekly low to high range. This is a large green candle that follows a very much smaller red candle.
This did not develop and this is the key clue to the continuation of the downtrend. The consolidation pattern is a pause pattern rather than a reversal pattern.
The short term group of averages in the Guppy Multiple Moving Average (GMMA) indicator were well separated. This shows that traders are not optimistic about the potential for a trend change. The long term GMMA has crossed over and is continuing to develop steady separation. These are bearish features that signal a continuation of the current downtrend.
The downside target is near $1130 and is based on the value of the previous pivot point low rebound recovery in 2016.
Traders who covered shorts as the consolidation developed will now look to open short position again when price dips below $1180.
Traders continue to trade the retreat behaviour. We use the ANTSSYS trading method for this.
Axicorp . Guppy appears regularly on CNBC Asia and is known as "The Chart Man". Disclaimer: Daryl Guppy is not a financial advisor. These notes are for educational purposes only and provide an example of applied technical analysis.
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