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Bounce to Test Prior Support as Resistance
Following a new record high of $2,956 last week, gold pulled back below prior weekly lows and triggered a breakdown of a rising trendline and the 20-Day MA. Support was subsequently seen at a pullback low of $2,833 last Friday. The following rally was a three-day advance to Wednesday’s high of $2,930. However, the advance is likely a counter-trend rally to test previous support areas, unless there are clear additional bullish signs starting with a sustained advance above the record high of $2,956.
The 20-Day MA was tested as resistance yesterday and it failed as the line was reclaimed, reflecting short-term strength. Moreover, the close today is set to be above the 20-Day line. This is why multiple indicators are considered when analyzing a market.
Weakness Below $2,894 May Signal Bearish Reversal
The behavior of gold following last week’s breakdown is typical in the early stages of a bearish retracement. Key support levels are broken and eventually an upswing follows support, to some degree, to test prior support as resistance. Once that happens the decline may be ready to continue. An uptrend line and 20-Day MA previously marked dynamic support for the advance that followed an interim swing low in mid-December.
As noted above, resistance was not seen on a test of the 20-Day MA. However, it has been seen around resistance of the trendline. Certainly, gold could go a little higher and test the line. But if there is a drop below today’s low of $2,894 the counter-trend rally may be about to come to an end and a second leg down from the record high might have begun.
Next Lower Support Target Around $2,820
A declining ABCD pattern has been added to the chart assuming today’s high is a swing high. If it is not, the “C” point of the pattern would be adjusted accordingly. It points to an initial lower target at $2,820. That level is joined by the 38.2% Fibonacci retracement level at $2,813. Together, they provide additional evidence for a likely test of the $2,820 to $2,813 support zone if the bearish retracement continues.
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