How to Trade Gold at Current Levels

11/28/2011 11:15 am EST

Focus: COMMODITIES

Corey Rosenbloom

Founder and President, Afraid to Trade

The “rounded reversal” price pattern seen in gold served as a recent sell signal, and on the heels of that development, gold traders must now base their decisions around price action at these crucial levels.

Gold gave us a breakdown sell signal last week in the form of broken daily support in the context of an intraday “rounded reversal” price pattern.

Let’s take a look at these new developments and the key levels to watch in the week ahead.

First, the intraday rounded reversal pattern:

chart
Click to Enlarge

First, be sure to take a look at the prior "Fibonacci and Divergence into $1,800 Update in Gold. You can then trace the analysis into how it played out currently, especially in terms of the negative divergences into the $1,800 level.

We can see the bigger picture here, as well as how price has played to the downside, breaking one intraday support level to the next (including Fibonacci and $1,700 round-number support).

That brings us to our current mini-triangle pattern developing between $1,680 and $1,700 with a midpoint near $1,690.

Simply stated, a breakdown under the $1,680/$1,670 level could trigger additional selling to complete the rounded reversal pattern that is about 70% complete (the target would be the $1,600 level).

Otherwise, a breakthrough above $1,700 triggers a pattern failure signal which may initially lead to a move to $1,740 or beyond.

Of course, there’s more components going on than that, but these intraday levels can be a guidepost to watch in the week ahead.

Let’s now pull the perspective up to the daily chart developments:

chart
Click to Enlarge

The daily chart allows us to see the broader picture beyond the recent rounded reversal (or “arc”) pattern.

For interesting reference, a successful mini-rounded reversal triggered into $1,700’s confluence resistance and completed with a move back to $1,600.

Whether or not the current larger rounded reversal pattern completes depends on whether buyers step in this week off $1,675 or whether sellers continue the price rout, which would likely sell off back towards $1,625, if not $1,600.

The short-term breakdown sell signal came recently on the collapse under the 20/50 exponential moving averages and then the $1,700 level.

Continue watching these levels to guide your trading decisions.

By Corey Rosenbloom, trader and blogger, AfraidToTrade.com

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