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Option Millionaires was started in February 2008 to provide traders with information about option trading. Led by three career option traders, whose pseudonyms are JimmyBob, UraniumPintoBeans, and Vantillian, they started one of the most popular option trading communities on the web. Now, Option... More
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  • Predicting Gold's Next Move – Descending Triangle Gives 8% Swing Target 0 comments
    Dec 6, 2012 9:37 PM | about stocks: GLD, IAU, GDX, UGL

    By Christopher Diodato

    Since the start of September, gold has been floundering around in a well-defined trading range between about 1610-1750, not really deciding to trend in either direction since. Since that time, however, the gold market has been consolidating into a price pattern that allows us to project intermediate-term targets. The pattern I see is a descending triangle.

    (click to enlarge)

    There are two targets on this chart. The bull target would be activated once the price breaks above $168.50, corresponding to $1685 for the actual spot price of gold. The bear target is activated once $161 is broken, and confirmed as a strong sell signal once $159.50 is broken.

    Which direction do I see price breaking out? Well, it's looking bullish in the very short term. First off, today's price action represented a "bullish engulfing" candle pattern. After these patterns occur, there is, at least, some follow through with a short term price rise.

    (click to enlarge)

    Other momentum indicators show minor divergences in price, which usually precede a price rise. Still, that price rise might not be sufficient to trigger a breakout. What I would like to see is an advance on high volume, such as the volumes seen in the August-September rally when gold rose over $250 in one month Average daily volumes on both rallies and declines is current about half the Aug.-Sept. levels. Once that buying interest comes back, it's time to catch the gold bug again.

    Happy trading!

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

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