GOLD: Short Term Bullish Momentum Encounters Converging Resistance Lines
The daily candle chart below shows the price of Gold trading near 1419.45 (as of publication) in the current session after reversing at the high near 1433.80 coinciding on the median line of the medium term bearish channel (point 2) and on the short term bullish support line (point 4) which was anticipated as a likely target for the precious metal in a previous article in late July 2013.
The short term momentum has been along the bullish trend line (point 1 – which first acted as support then resistance) and consistent with previous bullish trend lines within the overall medium term bearish channel (point 2). If this line (point 1) can provide a continuation for an upside breakout of the median line (of point 2) then Gold may target the upper resistance line of the medium term bearish channel (point 2) intersecting near 1580.00 by early October 2013 with support – in the case of a pullback during that time - on the short term bullish support line (point 4) just below.
Considering the converging resistance lines that Gold encountered today near session highs, a reversal could follow down a developing steep short term bearish resistance line (such as point 5) or less steep bearish resistance line similar in slope and equidistant to the steep bearish channel (point 3) with a target back on the lower support line of the medium term bearish channel (point 2) intersecting near 1260.00 by early October 2013.
Another alternative is a sideways market could follow – albeit a slightly bearish one -with gold building along the median line of the bearish channel (point 2) before any definitive continuation in either quadrant of that channel occurs.
Below are examples of how to trade a bullish continuation or a bearish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 1439.00 with a Limit to take profit @ 1481.00 and a stop-loss @ 1423.00 Risk/Reward Summary: Limit risk = + 42 points profit / (-16) points Stop-loss risk = Gain to Loss ratio = 2.62
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 1396.00, with a Limit to take profit @ 1354.00 and a stop-loss @ 1418.00 Risk/Reward Summary: Limit risk = +42 point profit / (-22) Stop-loss risk = Gain to Loss Ratio = 1.90
Medium term daily candles: