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Robert Edwards
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Contrarian daytrading technician who specializes in locating high probability short term trades while predicting price movement directions with over 85% accuracy. Most of my trading involves either extremely short term micro scalping of stocks or commodities (using 1 minute bar charts), or swing... More
  • Was The Thursday (7/24/14) Lower Low In August Gold, A Bear Trap? 0 comments
    Jul 26, 2014 10:52 PM | about stocks: GLD, GDX, GDXJ, DUST, JDST

    Michael Noonan of Edge Trader Plus is one of my favorite technicians in the gold market. Today he posted a must read article here, (skipping the Gold/Silver Ratio trading stuff) his sixth chart was an interesting read on the gold market daily chart. I will post the chart as follows:

    (click to enlarge)

    The lower low on Thursday in August Gold to $1287.50, and close of $1290.80, were both below the recent support of $1292.60, firmly turning the short-term trend down. The chart shows a downward channel forming. If August Gold would move to the lower end of that channel, we could easily see $1260 in August Gold within just the next few trading days. However, Friday's trading was quite extraordinary. First of all, in the night session, August Gold gapped up, and failed to fill the gap by a mere 20 cents. Moving higher by gapping up and never filling the gap, after such a weak day, is very unusual. I wanted to short December Gold when August Gold traded back to $1295 and for a few minutes I did just that. However, throughout the entire day Friday, August Gold would not sell off at all, just move sideways to higher the entire day. After a few minutes I got out at breakeven, just before August Gold spiked higher to $1298, and then $1300, finally hitting $1303.30 for the 1:30 p.m. EST close. But in the afternoon we drifted steady to higher, first to $1306 and finally $1308.90, ending the day at the highs. The late day surge took out Thursday's high of $1305.60, so Friday had a higher low and higher high than the previous day. This greatly increases the chances Thursday's low move is a bear trap.

    You also must consider that we are in the midst of light summer trading volumes which can cause volatility and moves that in the end just turn out to be noise. Breaking below and even closing below $1292.60 on Thursday, may turn out to be a bear trap, as it was nothing more than running of stops to force the bulls to take their loss at the bottom. At the very least, I would look for an up day for at least part if not all of Monday, 7/28/14. I am looking for August Gold to possibly approach resistance in the $1315 to $1318 area, with a small chance we see $1325. If we hit $1315 to $1325 in August Gold, I would favor shorting gold for a scalp trade, or buying DUST and/or JDST if you trade the bearish leveraged gold miner ETFs. Once short, one would look to see a break of $1300 again to confirm we are moving lower. However, if we stop falling in the $1303 to $1300 support area and turn back up, a major low may been struck on Thursday at $1287.50 in August Gold.

    Again, in the short-term, there is significant resistance at $1315, $1318, and again at $1325 where I would look for a temporary top in August Gold. Once gold stops at one of these levels, one will want to watch closely for the retest of $1300 to gauge the strength of gold.

    I will be playing December Gold beginning in the Sunday night session, 7/27/14. December Gold trades about $1.90 to $2.00 higher than the price of August Gold. I bought December Gold and captured the late day surge of Friday, and have not taken profits yet. On further minor strength, I plan to take profits. Against $1315 and higher I plan to go short, however, for Monday's trading, I will be buying dips when August Gold trades between $1300 to $1305 thinking that initially we will remain above $1300. For Monday only, I want to buy on minor weakness as long as $1315 has not yet been seen. I intend to switch to the short side between $1315 to $1325.

    Starting Tuesday, 7/29/14, I expect to begin to see more weakness creeping in and I am anticipating a likely move next week, back under $1300, and possibly again below $1290. My initial price target on the downside is in the $1278 to $1280 area where I anticipate becoming a short-term bull again, or at least scalping from the long side for a few days.

    The giant wedge, sideways action in gold continues. Also what continues is the fact that gold is usually my least favorite metal. I continue to like buying dips in September Palladium when it dips into the $860s, and taking profits in the $880s.

    Platinum is in a more defined downtrend right now, and formed an inside day (trading within Thursday's range), closing up on Friday, which is bearish. Platinum could be weaker than Gold just for the coming week and I may go short Platinum and then lock in profits by buying Gold on dips. As Gold remains locked into a sideways range, I see $1290 to $1310 as the value middle price area for the nearby Gold contract. As we approach $1270 to $1278, I am much more bullish. From $1318 to $1330, I am more bearish. I consider $1300 an important pivot point price that I will use to gauge future directions.

    Realize that a news event, like downing of an airliner, can spike gold up, while gold tends to collapse through support when things become more calm. Other than the bullish seasonal trend that could kick in come September, there is very little fundamentally bullish about gold right now. Get the stock market to crash, or at least correct more than 1-2%, if you want to be a gold bull. Without weakness in the stock market, gold rallies should remain subdued. But right now, with safe haven buying due to all the political unrest in the world, dips should also be well supported so being a bear may also be challenging. I am right now neither bull or bear, but just an opportunist trying to get clues to the latest swing up and down in gold, and trying to be on the right side of those swings. In the end, more sideways action is likely ahead, so keep the teeter/totter rocking!

    Disclaimer:

    The thoughts and opinions in this article, along with all stock talk posts made by Robert Edwards, are my own. I am merely giving my interpretation of market moves as I see them. I am sharing what I am doing in my own trading. Sometimes I am correct, while other times I am wrong. They are not trading recommendations, but just another opinion that one may consider as one does their own due diligence.

    Themes: Gold Futures Stocks: GLD, GDX, GDXJ, DUST, JDST
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