Bounce follows bearish reversal day
A reversal day and a close near the lower half of the day’s trading range is not bullish behavior. It signals a possible escape failure, at least for now. If this is correct, gold could experience a deeper retracement and consolidation before it is ready to move higher. A drop below yesterday’s low of 2,547 signals further weakness.
Gold sparked a bullish continuation of its long-term uptrend with an upside breakout five days ago. The breakout level was 2,532 and marks key near-term support along with the 20-day MA, which now stands at 2,528. Note that the 20-day line has converged with an internal ascending trendline and marks the same price zone. If the 20-day MA fails to hold as support, further down the line the 50-day MA is at 2,473.
Support found from 38.2% retracement
Nevertheless, yesterday’s pullback completed a 38.2% retracement of the near-term rebound, and we see a recovery out of that zone. That’s a sign of strength in the short term that needs further confirmation. If gold breaks through the 2,600 high, it will signal a possible bullish continuation of the uptrend. Since it would follow yesterday’s bearish one-day price action, gold could make a sharp advance as it would indicate a breakout failure. The next higher target zone starts around 2,650 and goes up to 2,660.
The weekly closing can provide clues
Finally there is one day left in the week. Last week’s high was 2,586 and gold was trading above that, marking a weekly continuation of the trend. A weekly close this week above last week’s high will provide a slightly more bullish indication than a weekly close below that high.
For a look at all of today’s economic events, check out our economic calendar.