Declines below key levels are bearish
Although last week’s rally was sustained and saw gold prices regain an ascending trend line and two moving average lines, Monday’s sharp decline to a five-day low and a weak close negated any bullish indications that might have occurred. For example, potential resistance on the way up was quickly overcome as gold retook a rising channel line, the 50-day line (orange), now at 2,666, and the 20-day MA (purple), currently at 2,662, one day at 2,666. a time.
These lines currently represent key areas of potential resistance as the correction signals a continuation lower. In addition to another daily close below the moving averages and the trend channel, you can see the 20-day MA starting to cross below the 50-day MA.
Falling ABCD pattern points to 2,470
Since Monday generated a lower swing high, a descending ABCD pattern has been added to the chart in case the correction evolves into a new swing low. Certainly, given yesterday’s bearish close and again today, below the rising trendline, rallies could encounter resistance leading to lower prices.
The initial target of the pattern, where there is 100% symmetry in the price change between the two down swings, AB and CD, is at 2,470. Because that price level coincides with both a 61.8% Fibonacci level at 2,473 and a previous support and resistance zone, it becomes a lower target. Furthermore, there is also an uptrend line running through that price area and one should look for signs of support if gold continues to weaken.
The descending channel could lead to a drop below 2,537
A descending parallel trend channel is shown on the chart by taking the upper trendline and creating a parallel level to reach the recent swing low at 2,537. It can be a guide as gold progresses. For example, resistance can be expected at or below the upper channel line. Furthermore, if gold rises above that line and stays above it, demand would improve rather than decline. The bearish case would hold if gold stayed below the upper downtrend line.