Last Week’s Price Action Suggested a Pivot Was Forming In Gold

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On Friday of last week, we spoke about the fact that over the last two trading days (Thursday and, Friday) we had seen the first real signs of gold pricing finding support and reaching a potential bottom.

One of the most revealing days was Thursday, when gold traded to the lowest price point this year before recovering. After trading to an intraday low of $1167 per ounce, gold futures (basis the most active December Comex contract) recovered with a vengeance and actually closed near its opening price that day.

To the Eastern market technician that forms a single candle type simply called a “doji”. A “doji” candle is formed when the open and closing prices are equal or near equal for a given time cycle.

According to Wikipedia “The doji is a commonly found pattern in a candlestick chart of financially traded assets (stocks, bonds, futures, etc.) in technical analysis. It is characterized by being small in length—meaning a small trading range—with an opening and closing price that are virtually equal.”

Wikipedia is correct in its definition that the open and closing price are virtually equal, however they missed the mark when they referred to this candle type being characterized by being small in length. Although a “Doji” can have a small trading range, and thereby be small in length, or it can contain a rather large trading range.

What is important about this candle type is the fact that it’s open and closing price are exact or very close together, which indicates indecision in the market. It is that indecision that indicates there is a real potential that the power will shift from bullish to bearish, or bearish to bullish. It illustrates a point in time in which there is a change or shift in which faction is controlling market action.

What was of great interest on Thursday is not only was there a large trading range, and the market closed very near the open, but it was the speed and intensity in which pricing came off of the lows and moved back to unchanged that caught the attention of market analysts. The large trading range created a “long – legged doji” which reflects a tremendous amount of indecision in that both the bearish and bullish factions were able to move pricing substantially, and yet prices closed near the opening price.

This candle type is in and of itself found within a larger pattern and at a significant price point in the market. Which was the case on Thursday because this candlestick occurred just at a critical level of support which we identified at $1178 per ounce, based upon the fact that it was a .78% Fibonacci retracement.

On Friday gold made a substantial price recovery and moved to higher ground which created a variation off of a pattern called a “Three River morning Star”.

It was at this point that there was the distinct and high probability that what we were witnessing a bottom in pricing.

Today’s move back to within $3.50 of $1200 is a confirmation that what we witnessed at the end of last week was at least on a short-term basis, price support being found in gold and a real potential for a bottom in price.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer