Sunday, January 15, 2012

Gold: Next Direction

With overnight Sunday trading of gold futures set to begin in a matter of hours I offer this post to lay out some of the parameters of the precious metal's current technical situation. We will look at gold through a variety of time frames beginning with a monthly and weekly chart, then progress to the daily and four hour cycle charts. 

It would be gratifying for me to jump to the conclusion that gold has finished its multi-month correction but I cannot do so in good conscience considering the particular set of technical tools I use. A few brave souls (Hubert Moolman, Alf Field and Rick Ackerman), however, have a different skill set than I and have recently suggested gold's low is probably, if not definitely, in the bag. Could be - but I am just not quite so sure.

Our first chart to contemplate is the monthly of the World Gold Index (XGLD). We see that the price of gold has continued on a nice trend line and is presently contained by a descending line of resistance originating from the September high. The True Strength Index (TSI) indicator has been declining for the past 5 months - yielding no clue of an end in sight....yet.

Click on any chart to ENLARGE

Next up is the weekly chart of XGLD which does hint that there may be an end in sight. None of the TSI BUY signals have been triggered decisively, but it sure is looking promising.

Well, the TSI on the daily chart just made me smile.  Not so much because it tells us where gold is going next, but because it did another incredible job of perfectly nailing the recent December 28 low with not one or two, but three BUY signals.

Anyway, I also threw the trending TSI (25,13) magnification on this chart to give us a clue whether this rally was the definitive start of something new - think 'A-wave'.  

Here again, we are close to having confirmation but nothing decisive. If gold were to now immediately turn lower the TSI (25,13), as it is still below ZERO, would also turn lower (perhaps with the lag of a day or two at most). Should this happen it would spring load the slower TSI with a lot of energy that, when unleashed, would launch gold into orbit.

Now for a look at the 4 hour cycles chart of gold. We will begin with a broader view of the last several months then zoom in even closer with a final chart that includes the True Strength Index.

The observations that catch my eye are the top on Day 9 of this daily cycle, the top on Bar 21 of the current four hour cycle and the price trend line break of the daily cycle.

These cycle count readings put us just barely on the 'not so safe side' of left translated cycles. If these tops are not taken out soon I would have to wonder if the $1605.7 level of this four hour cycle will hold. If that does not hold, then possibly the $1523.90 level of this daily cycle will not hold either. And that of course would mean that the D-wave is continuing and the A-wave has not begun.

And as promised, here is the final chart with the TSI having the last word. 

The week ending trade of last Friday saw the True Strength Index yield two accurate trend line break SELL signals (purple dots). The trending TSI (25,25) began to roll over suggesting a possible change in trend direction from up to down. This would be considerably more ominous if the TSI were below ZERO - but as the (25,25) is above ZERO this little bull flag could just be a breather before an advance in price higher.

So the next direction for gold is ...... you got it! I really do not know. But heck, I already told you that in the second paragraph.

Anyway, if you read this far perhaps you have a few new things to keep your eye on this week as you decide for yourself how you will trade the gold bull.

Have a great week!


  1. Thanks John! Purple dots - Beauty! Shhhhh... do it quietly!

  2. I really appreciate your market perspective - I've switched from buy-n-hold (15 years worth) to swing trading since 1 month now. Your information is very useful to the new swing trader!! Thanks kindly and,
    Best regards from Austin Texas