Technicals | Apr 05 2011
24/3:
LAYMANS:
Scott suggested a target price for Gold "…above 1500" in his last review. I'll increase that to 1675. Price action has been building progressively over the last few months in a reasonable range between 1300 and 1400. It looks like it wants to break higher, although there remains a slight probability of one last poke lower. Whilst that risk is low it still needs to be taken into account for traders entering here. There are numerous upside targets: 1520, 1600 and 1675. There appears to be a little confluence on the higher end and based on some more technical intricacies we feel this is the more probable expectation. As such there is a very good risk/reward argument for being involved one way or other. It would take a close back below 1380 to revert to a more neutral stance.
TECHNICAL:
Off the Wave-4 low we have a decent impulse followed by a near perfect a-b-c pattern to what has now been labeled a smaller degree wave-ii. There is a chance that we may see a slightly longer corrective flat pattern but by all accounts it seems Gold wants to travel higher now. Using the lower degree pattern we can better determine the terminal point for the larger degree wave-5 as well. Using the Fibonacci spreadsheet in the Resource Library we can input both the larger time frame points to date, as well as the smaller degree waves-i and -ii. Any confluence suggests with reasonable probability that that's where we'll end up – circa 1675. Another consideration is that the larger degree waves-1 and -3 are no dissimilar in length and normally we like to see one impulsive wave extend. That has not happened, so again probabilities tilt toward wave-5 being that extended wave and another reason to think a higher target could be achievable. Any way you wish to look at it, price is tagging all-time highs and doing so in a very optimistic way so we can only conclude that this current trend has more upside to come.
Trading Strategy
24/3:
Move stops on any long position to 1370 or exit on any close below 1380. Those looking to initiate long positions or pyramid exiting positions do so here with stops at the same level. The ideal situation is that price shoots straight higher but there remains scope for a little more consolidation against this line of resistance. Option traders may wish to buy deferred out-the-money calls around 1550 or conversely sell a 1350/1300 put spread. Option volatility stands at 18.37% with the 30-day volatility at 14.52% and trending down. We'd be needing an aggressive pop out of this consolidation to get volatility rising again.
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