Craig Coatney's  Instablog

August gold futures (GCQ2) has been consolidating just above a major supportive level of +/- 1525.00 (the December 2011 low was 1523.90 and the May 2012 low was 1526.70). (CQG graphics used for each chart)

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This consolidation has taken the form of a daily symmetrical triangle which has an amplitude of 106.60, and has breakout parameters of 1726.10 (bullish objective) or 1448.40 (bearish objective).

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1448.40 = The bearish objective if a daily close were to occur below 1555.00 for Friday (note that Thursday's low was 1554.40).

For confirmation, one can wait for a daily close below 1547.60, the June 28 low, and last low/3rd turn of the triangle pattern.

Trendline support arrives at 1555.00 for GCQ2 (1554.9810 without rounding for contract specs) for Friday and has a positive slope of 0.7381, so this trendline will arrive at 1555.70 (1555.7191) for Monday.

Long-term, if this 1448 level is reached, the next major supportive level would be down at the 1300-1310 level.

1449.00 = The 38.2% retracement of the October 2008 low of 681.00 (made on the December 2008 contract) to the September 2011 high (made on the December 2011 contract). This is close to the daily downside objective of 1448.40.

1302.30 = The 50% retracement of the same range mentioned above.

1726.10 = The bullish objective if a daily close were to occur above 1619.60 for Friday.

For confirmation, one can wait for a daily close above 1625.70, the July 3 high and last high/4th turn of the triangle pattern.

Trendline resistance arrives at 1619.50 (1619.5474) for Friday and has a negative slope of 0.8789, so this trendline will arrive at 1618.70 (1618.6685) for Monday.

1676.00 = The 38.2% retracement of the September 2011 high (made on the December 2011 contract) and the December 2011 low of 1523.90 (made on the February 2012 contract).

1723.80 = The 50% retracement of the same range mentioned above.

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Gold/Silver Ratio:

57.43 = Bullish channel support. See attached chart.

57.10 = July 3 low.

Even though silver has been more offered than gold (causing this ratio's rise), that could change with gold breaking below its triangular formation.

If this ratio trades below 57.00, then profit-taking can arise in this relationship, thereby exacerbating gold weakness.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: This was written Thursday at 3:30 pm CDT.

Note: For this Instablog entry we'll be using the June e-mini S&P 500 futures contract. The June contract is running at a 4.17 discount to cash, so add roughly 4 points to derive the equivalent cash levels.

We used the cash S&P 500 for previous articles. Sorry for any confusion, but the concept is the same.

An emerging Head and Shoulders pattern in the June e-mini S&P's can become fully formed given a close below 1358.75 on Friday, where the neckline (trendline) arrives.

The minimum measuring objective would be 1283.50 (a 5.5% decline from 1358.75), which is derived from the pattern amplitude of 75.25 subtracted from 1358.75.

Normally a daily close below this neckline/trendline is used to confirm the pattern and also to act as the point of entry.

But given how near the market is to this neckline currently (late Thursday afternoon at the time of this writing), then if a steep sell-off were to occur Friday, waiting for an end-of-day entry could be very deep.

For those with quicker triggers, an initiating stop-entry could be used at 1350.00 - which would be 2.5 points below the April 10 low of 1352.50.

With 1283.50 as a potential objective (again adding 4 points would be 1287.50 in the cash), and an entry at 1350 (blue horizontal line on chart), then a stop-exit at 1375 (purple horizontal line on chart) would have over a 2.5:1 profit-to-loss ratio including slippage.

This would be a bearish technical justification for my Range Contraction Indicator mentioned in my last article.

Note that this neckline (trendline) has a positive slope of three ticks per trading day, so if Friday's close isn't below 1358.75, then this neckline will arrive at 1359.50 for Monday's trading day.

See the chart below (CQG graphics):

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

A great deal of compression in Cotton since September 2011.

With recent news of slowing demand of U.S. supplies, along with intermarket risk-off rumblings, the market's indecisiveness and/or ambivalence may quickly end.

After looking at this commodity from contract specific, continuous and equalized perspectives (on both a daily and weekly basis), trading above 95.00 or below 85.00 can lead to an immediate pop in short-term volatility.

The first chart below of cotton is weekly and equalized (CQG graphics).

(Note: Equalized charts take the most liquid 'front' month and then adjust or equalize out any gaps between prior contracts. Although previous highs and lows may not be historically accurate, it can be a better indication of pure price behavior. Look at it this way, a trader would roll his open position, not record a huge profit or loss when the contract he's trading changes. Standard continuation charts (gaps included) have their place, but equalized charts can be a better indication of pure price.)

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86.01 = The 50% retracement from the November 2008 low to the March 2011 high (again on an equalized basis).

85.61 = The December 2011 low.

The second chart is the contract specific front month: May 2012 (CQG graphics).

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A symmetrical triangle has formed with trendline support arriving at 87.93 for Tuesday (positive slope of 4 ticks per trading day).

Given a pattern amplitude of 14.19, then a daily close below 87.93 - and for confirmation, below 87.00, the March 16 low and third turn of the triangle - would create a theoretical downside measuring objective of 73.74.

And if this downside test doesn't materialize, or a bear trap ensues, then breaking above the March/April highs will have emboldened bulls looking to buy momentum for the first time in quite awhile.

However this does not have to be a pure directional price play. Short-term volatilities are due to pop, and the charts above are simply a graphical representation of it.

Good luck.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.