Possible Top in Gold Coming

02/10/2009 10:51 am EST

Focus: COMMODITIES

Ken W. Chow

Professional Trader, Pacific Trading Academy

As you can see from the weekly gold chart below, the price is approaching strong resistance.  The 78.6% retracement from the high is an enormous range.

The daily chart below shows a series of measured moves (MM). Since the following MMs don’t show time ranges wider than the first by a factor of one and a half, the first MM will be used as the dominant MM. It’s 361.8% of B to C and extends close to the 78.6% retracement.

On the chart below, the first level supporting MM shows a medium deep retracement at point c. The 261.8% extreme extension of b to c unfolds into the other Fibonacci levels.

In the chart below, the second level supporting MM is such because its time range is not wider than the previous by one and half times. We see the 100% MM extension near the Fibonacci level cluster.

Finally, in the chart below, we see the third and fourth level supporting MMs showing their 261.8% extensions slightly above the cluster of levels. The average of these six Fibonacci ratios equals 973.88—mathematically the high at which a trader could consider going short.

Because of the dominant MM’s super-extreme 361.8% extension in this confluence, a top is very likely. Because of the deep retracement of the dominant point C, the drop may be more than 50% of this up move from the October low to the probable high.

By Ken Chow of Pacific Trading Academy

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