Gold 4H chart 10:19PM EDT 12/9/2012
Consolidation: Gold has been trading choppily since falling from Octobers 1795.80 high. It fell to 1672.28 by early November, and continues to consolidate between these two levels. As we start a new week of trading, price action in gold appears to be forming a bottom.
Double bottom: The bottoming action refers to the double bottom being completed as we begin the 12/10 Asian Monday session. Pushing back above 1700 showed lack of bearish conviction, and further push above 1707 clears some recent support/resistance pivots as well as clearly completing the double bottom.
Trendline break: There is a falling trendline projected from November’s high just above 1750 that has held price action until last Friday (12/7). However this break has so far in a sideways manner and not really a reversal or bullish manner. Completing the double bottom, or clearing above 1707 should make this break a more bullish rather than sideways breakout.
Momentum: As price action shows some early signs of bottoming, momentum in the 4H time-frame still has bearish bias, though it is now neutral with the 4H RSI reading near 50. If the RSI is pushed above 60, then it is more clear that bearish momentum is done.
Resistance for bullish scenario: If the bullish scenario does indeed develop, the breakout exposes the origin of the trendline, which is near 1750. However, before that, around 1735-1740, there is a resistance pivot area as well. Since the market has been consolidating since October, the bullish outlook should first be conservative.
Failure: Failure to stay above 1700 early this week could be a sign of weak bullish attempt. A break below 1680-1682 area could be a sign of bearish continuation, especially if the 4H RSI reading also falls back below 40. The bearish scenario first has 1672.28 Oct. low in sight before exposing further bearish outlook toward the 1640-1646 support/resistance pivot zone.
Fan Yang CMT is a forex trader, analyst, educator and Chief Technical Strategist for FXTimes – provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.
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