How to Trade December Gold Futures

10/02/2009 11:00 am EST


The following chart of December gold futures shows a consolidation in price (as opposed to trending) for the month of September.

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We believe it is one of two things: 1) Either a continuation pattern similar to the price action between mid-July and August that lead to new highs; or 2) A reversal pattern.

Reinforcing the continuation pattern is the fact that prices are holding above the AMA (adaptive moving average) line at 99580 and the weekly pivot at 99950. What's missing is a solid breakout above the MLR (moving linear regression) at 101040.

A rally above and close over 101040 targets 103550 and then 107230. However, if what we are looking at is a reversal pattern, in this case a head-and-shoulders top, then prices are expected to "stall" into the MLR line at 101040 and break down towards the neckline at 98630.

A close below the neckline at 98630 validates the H&S top pattern targeting 94470. Therefore, failure at 101040 should be sold targeting 99580 and then 98630, and a close below 98630 extends our target to 94470. A rally above 101040 should be bought targeting 103550 and then 107230.

By Michael Riordan of

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