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Ideas You Can Trade: Gold - Sharp Drop Off Bearish Resistance

Posted by Steven Hatzakis on Oct 1, 2013 5:52:00 PM

Gold: Steep Bearish Resistance Line Pushes Gold Lower Following US Government Shutdown

The daily candle chart below show the price of Gold over the medium term (since Oct 2012 to present). The precious metal is trading near 1287.30 (as of publication) in the current session and nearing lows for the day (current low near 1282.30) after falling sharply following the announcement of the US Goverment shutdown earlier today as the start of the 4th Quarter began. The fall in the price of Gold started from the upper resistance line (point 3 in magenta on chart) of a of a bearish channel which it has failed to break above during September and which was noted as a potential bearish continuation in a previous article on the metal earlier last month.

The low for today is close is near the low’s reached in mid-September where horizontal (static) support could be building as levels near 1,280.00 have coincided with several key dynamic support lines as can be seen over recent history in the chart below.  

A breakout to the downside of 1280.00 could enable the precious commodity to target the support line of the medium term bearish channel (point 2 in red) near 1250.00 and further support much lower near the median line of the steep bearish channel (point 3) closer to 1100.00. Unless support can be found today near session lows, the direction looks bearish over the very short term, although the medium term trajectories from the metal’s current bearing may be less certain since it is in between major (trend line) levels.

If the bearish resistance line (point 3) can be retested and even overcome, the short term bullish trend line (point 6 green) and short term bullish resistance (point 4 in aqua) could be targeted near the median line of the bearish channel (point 2) vis-à-vis a steep short term bullish trend line (such as point 1 in yellow) which could develop.

 Below are examples of how to trade a bearish continuation or a bullish reversal:

1.  BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 1325.00 with a Limit to take profit @ 1375.00 and a stop-loss @ 1301.00 Risk/Reward Summary: Limit risk = +50 points profit / (-24) points Stop-loss risk = Gain to Loss ratio = 2.08

2.  BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 1278.00, with a Limit to take profit @ 1250.00 and a stop-loss @ 1298.00 Risk/Reward Summary:   Limit risk = +28 point profit / (-20) Stop-loss risk = Gain to Loss Ratio = 1.4

 Medium term daily candle chart:

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