Price Rejected at 20-Day MA – Bearish
The 20-day MA line recently indicated dynamic support for the uptrend, and was successfully tested as resistance today as gold prices were rejected around the line to the downside. The same can also be said about the relationship with the rising internal trend line. It represented an area of resistance today, after previously showing support for the uptrend. This is bearish price behavior that is typically observed during the development of a downtrend.
Friday’s dive could be an omen
Last Friday’s sharp one-day bearish reversal day shows aggressive selling and mimics the broad red candle of November 6. That happened as the decline from the record high of 2,790 accelerated. It may have been a warning sign that a bearish continuation could be coming, as last week’s high is a lower swing high from the all-time high. If the bears maintain control, the November swing low at 2,537 would be at risk of failing to support support.
Falling ABCD pattern formed
The bearish pattern that may be developing is a bearish ABCD pattern. It is nothing more than a way to calculate two consecutive measured moves connected by a pullback. Initial targets from the pattern occur when the price change observed in the CD leg of the pattern matches the change in the first AB leg. The first target is where there is symmetry in the price between the two swings. Extended targets can also be calculated, and these are based on Fibonacci and other ratios. Although the analysis may provide potential targets, ideally there should be a coincidence with other indicators that point to a similar price target.
The calculation of the purple ABCD pattern on the chart indicates a potential target of 2,470. That level is reinforced as an objective because it is also identified in several other ways. An analysis of the Fibonacci ratio shows the 61.8% retracement at 2,473, while there are also two trend lines nearby: one rising and the other falling. Furthermore, resistance from an interim swing high in July is 2,484.
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