Gold breaks solidly to the upside with gains of 2.29% on the day
If you recall from my articles from earlier this week, first on Tuesday, May 5 titled “Gold prices firm as U.S. dollar continues to climb”, we included a daily candlestick chart which included a hand-drawn compression triangle, commonly referred to as a pennant formation. We also included an arrow indicating that we were expecting a breakout to the upside. Below is that chart which was available to viewers on Tuesday.
This was followed by another daily candlestick chart yesterday May 6 (see chart Below), in which we had drawn in the compression triangle even though the market had moved to the very bottom of the range, at the support trendline. This chart was sent to our subscribers. Although the market closed on that day right at a critical support line of the compression triangle, we reported that there was no solid break below that trendline, and that it did not constitute any kind of major technical chart damage.
This Western pattern (pennant) is a widely accepted technical tool in which we look for the compression of range, which simply put is created when a market trades sideways with a number of lower highs, and simultaneously higher lows. You can see that on the chart below.
As of yesterday, May 6, the fact that gold had opened at the high of the compression triangle and closed just at the lows made it seem a little less likely that the breakout I was expecting would be to the upside.
My rationale for looking for an upside break was that when technicians view a compression triangle as it releases energy from the apex of that triangle. We will typically see break above or below support and resistance lines, but most importantly have a significant release of momentum. The energy is accumulated as the range compresses, and is released once a stock or commodity breaks above or below the pattern. Typically, the break out once again move to the most prevalent trend direction, which in the case of gold has definitely been higher.
The chart above (chart 3) is the most current chart from today’s trading activity. It clearly shows a solid close above the resistance line created from the upper band of the compression triangle. The chart (chart 4) below is also from today’s trading activity and each candlestick represents four hours of trading.
While it will be tomorrow’s Labor Department’s jobs report that will have a profound and great influence on how the week ends. Based upon the technical studies, we have presented over the last few days, I believe there is a high probability that we will see a continuation of higher pricing.
Wishing you as always good trading and good health,
Gary S. Wagner - Executive Producer