Technical Trading: Gold Bulls Pause, Possible Pennant Is Forming
By Kira McCaffrey Brecht of Kitco News
Monday June 23, 2014 8:00 AM
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(Kitco News) - Mon June 23— Comex August gold futures have a slightly weaker tone in early Monday morning trade. The market shot sharply higher last week and the bulls are now taking a pause to catch their breath.
The near term trend outlook is bullish for gold, but the market has hit overbought levels on momentum studies and has approached strong chart resistance. The market is overextended as it traded above its upper Bollinger Band line (not shown on the chart). What does this all mean? Look for modest consolidative trade short-term as the gold market digests the recent move to higher price levels.
A look at the daily chart reveals that a potential bull pennant pattern could be starting to develop on the daily chart. This formation remains in the development stages and has not been confirmed, but it is worth keeping an eye on.
Bull pennants are continuation patterns, which implies that an upside breakout would confirm a resumption of the recent uptrend move. Let's look at how this could work. The large up thrust day on June 19 formed the so-called "flag-pole" of this developing pennant pattern. The action on June 20 and on Monday is starting to build the pennant portion. Generally, the pennant portion has a time limit on it —usually under a week.
Watch support at the June 20 daily low at $1,307.10 and resistance at the June 20 daily high at $1,322.50. For now, those are short-term toggle points for traders. A move above the high is bullish, while a move under the low would be bearish and would suggest the pennant formation is failing.
In order to "confirm" an upside breakout from this potential bull pennant, a strong and sustained upside breakout would be needed through the top of the pattern, which at this point is the $1,322.50 level. Two consecutive settlements above the breakout point are utilized by more conservative traders for confirmation. A "measured move" objective can be seen from the length of the flagpole to the top of the pattern. A strong upside breakout above $1,322.50 would project gains to the $1,368 area once confirmation of the bull pennant is seen.
Gold has accelerated sharply in a short period of time. The market is overbought and the bulls are a little tired. Near term sideways consolidation could allow gold to work off some of that overbought status and ready the market for a new up leg higher.
If heavy and sustained declines are seen under $1,307 it would destroy the bullish potential of this developing pattern.
The near term trend outlook is bullish for gold, but the market has hit overbought levels on momentum studies and has approached strong chart resistance. The market is overextended as it traded above its upper Bollinger Band line (not shown on the chart). What does this all mean? Look for modest consolidative trade short-term as the gold market digests the recent move to higher price levels.
A look at the daily chart reveals that a potential bull pennant pattern could be starting to develop on the daily chart. This formation remains in the development stages and has not been confirmed, but it is worth keeping an eye on.
Bull pennants are continuation patterns, which implies that an upside breakout would confirm a resumption of the recent uptrend move. Let's look at how this could work. The large up thrust day on June 19 formed the so-called "flag-pole" of this developing pennant pattern. The action on June 20 and on Monday is starting to build the pennant portion. Generally, the pennant portion has a time limit on it —usually under a week.
Watch support at the June 20 daily low at $1,307.10 and resistance at the June 20 daily high at $1,322.50. For now, those are short-term toggle points for traders. A move above the high is bullish, while a move under the low would be bearish and would suggest the pennant formation is failing.
In order to "confirm" an upside breakout from this potential bull pennant, a strong and sustained upside breakout would be needed through the top of the pattern, which at this point is the $1,322.50 level. Two consecutive settlements above the breakout point are utilized by more conservative traders for confirmation. A "measured move" objective can be seen from the length of the flagpole to the top of the pattern. A strong upside breakout above $1,322.50 would project gains to the $1,368 area once confirmation of the bull pennant is seen.
Gold has accelerated sharply in a short period of time. The market is overbought and the bulls are a little tired. Near term sideways consolidation could allow gold to work off some of that overbought status and ready the market for a new up leg higher.
If heavy and sustained declines are seen under $1,307 it would destroy the bullish potential of this developing pattern.
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