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Last week we examined the bullish
symmetrical triangle pattern in gold and identified the potential breakout
points in this time-tested technical indicator. We also looked at the Ichimoku Kinko Hyo indicators
for gold to see if their trend and momentum signals confirmed the validity of
the chart pattern. Were these indicators correct?
Well, time will tell, but there are
signs that the price of gold has broken out from consolidation, and may be
poised for a move up. Let’s see what’s been going on with gold.
Here is the symmetric triangle pattern
we identified last week.
 
With it, we identified breakout prices
of 1612 on the upside and 1559 on the downside. This week spot gold prices
broke through 1612 on the upper trend line. So does that mean we are on our
way up? As my market making Zen master always told me, “We’ll
see.” His words never seemed to satisfy my need for proof of any
premise.
Here’s a chart as of
yesterday’s close.
Gold began its move up after the
printing a hammer candlestick on July 24th. After strong upward trading the
next day, price action broke through the upper trend line on July 26th,
closing at 1614. The spot gold price continued higher last Friday. Trading
volume was significantly higher during the bullish trading sessions.
As we know, symmetrical triangle
patterns can signal continuation of the preceding trend, or a reversal.
That’s why some regard symmetrical triangle patterns as neutral
patterns. In the case of gold, continuation would mean a move to the upside.
A reversal would indicate the start of an intermediate trend to the downside.
It is important then, to confirm the
validity of any breakout. According to conventional analysts, such as Edwards
and Magee, a breakout pattern is invalid unless accompanied by significant
increase in trading volume. As indicated in the dark oval in the chart above,
trading volume was significantly higher during the bullish trading sessions.
Well, wouldn’t that confirm we
have a valid breakout? We’ll see, says the Zen Master. Here’s
why. Yesterday’s volume was down. And, price action produced a solid
hammer candlestick, indicating a tug-of-war between buyers and sellers that
ended on the sell side. So the validity of the bullish breakout from the
symmetric triangle pattern is not proved by volume beyond a shadow of a
doubt.
Nothing in life, much less in trading
commodities is certain. So we’ll stick to the preponderance of the
evidence here. Again, we rely on the Ichimoku and
other technical indicators to give us more evidence of what’s happening
with gold.
It’s clear from the daily Ichimoku chart that gold has broken through resistance,
and is now trading above the cloud. And the projected cloud has turned
bullish (now shaded green). The Tenkan Sen made a bullish cross of the Kijun
Sen from below on July 26th. These are all bullish
indicators. The Chikou Span (green line), has moved
above price action, which is bullish, but is now in neutral territory (in the
cloud). Were the Chikou Span to drift higher or
sideways, then all Ichimoku indicators would signal
a strong buy for gold. The separate MACD oscillator made a bullish cross
ahead of the Tenkan Sen
bullish cross, as is typical for the this “predictor” indicator. Support is now 1604, with first resistance at 1642, then 1665.
Edwards and Magee may prove right once
again that increased volume confirms a breakout from a symmetric triangle
pattern. I think price action provides the best confirmation. And we will see
shortly if the price of gold can withstand another bout with the fantastic
FOMC later this week.
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