Gold: Long Term Perspective Points to Futher Bearish Potential but Support Nearing
The daily chart below shows the price of Gold over the medium term, and the weekly chart further below takes a longer term view using weekly candles, a third one-minute candle chart is provided as referenced below for comparisons.
Gold closed near 1,238.75 (as of publication) in the session for Monday, following a mini flash-crash event, when during a one-minute time period earlier today, the price of Gold suddenly dropped from 1245.85 to a low of 1215.40 before almost fully recovering to 1235.65 where it closed after its 60-second wild ride.
While these values might not exactly mirror the underlying futures prices occurring during that minute, the short-lived sell-off was reportedly due to a mega-order of over 10,000 contracts of Gold at 10:14AM EST that was said to occur on the COMEX exchange - representing more than 1/10th of the day's volume in less than a minute and during which gold was temporarily halted due to velocity logic kicking in at the exchange).
This event, regardless of its cause or otherwise reason for triggering, could be connected to a future bearish event in time, that could bring further such momentum if the overall medium term trend continues, and it appears it will.
As its fifth trading session for 2014 will commence tomorrow, new lows for the year could happen as early as then, and looking at medium term daily candle chart below and longer term weekly candle chart, the short term bearish price action looks intact and a lower-low should be more probably than a significant recovery from current levels.
In the last post about Gold in the Ideas You Can Trade series, the bearish trajectory towards the support line of the medium term bearish channel (point 2 in red) was noted and had since been reached, where support was found just below on 1182.15 at the very last day of the 2013 calendar year.
Gold has been on a steep correction path from its record highs above $1,900, reached in August 2011, and may be headed back to test the long term bullish support line before a major reversal occurs.
Below are examples of how to trade a bearish continuation or a bullish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 1268.50 with a Limit to take profit @ 1276.00 and a stop-loss @ 1264.50 Risk/Reward Summary: Limit risk = +7.50 profit / (-4.00) stop-loss risk = Gain to Loss ratio = 1.87
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 1215.00 with a Limit to take profit @ 1182.00 and a stop-loss @ 1225.00 Risk/Reward Summary: Limit risk = +33 profit / (-10.00) Stop-loss risk = Gain to Loss Ratio = 3.27
Excerpt of 1 minute candle chart form today (with mini-flash crash):
Daily Candle Chart -Medium Term View:
Weekly Candle Chart Longer Term View: