Three River Morning Star and Golden Cross Signal Higher Gold Prices

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Recent action in gold indicates that there is solid price support at the recent low of $1215. On a technical basis, there are two major patterns identified that confirm this assumption and market model. The combination of these patterns together indicates a high probability that gold prices will move higher over the next few weeks.

On a weekly Japanese candlestick chart, a Three River Morning Star pattern has been identified. This pattern was completed this week as gold prices gained 2% on the week. The Three River Morning Star pattern has an uncanny ability to indicate a key reversal or pivot has occurred and that the previous bearish trend has concluded.

The first criteria for this pattern is that it needs to be found after a defined downtrend. This downtrend will be capped by a final extended price decline, creating a large red candle which is the first candle of this pattern.

The second candle in this pattern is a very small-bodied candle or a doji. Both candle types are characterized by an extremely narrow range between the open and closing price of a cycle, in this case a week apart. In a doji candle, the open and closing prices are either identical or a few ticks apart. The body of this second candle (the range between the open and closing price) must occur below the prior large red candle.

The third and final candle of this pattern is a large green candle, which is created from a strong upside move. This candle opens above the star formed by the second candle.

Three River Morning Star Interpretation

A Three River Morning Star signals a change in trend from bearish to bullish. Traders use it as an early indication that the downtrend is about to reverse. A morning star pattern can be useful in determining changes in trends, especially when used alongside other technical indicators.

A Golden Cross

In this case, the candlestick pattern identified occurs jointly with a Golden Cross. The Golden Cross is a bullish breakout pattern which is formed by a crossover of a short-term moving average breaking above its long-term moving average. In this instance, the shorter 50-day moving average has crossed above the 200-day moving average. 

According to Investopedia, “The most commonly used moving averages are the 50-period and the 200-period moving average. The period represents a specific time increment. Generally, larger time periods tend to form stronger lasting breakouts. For example, the daily 50-day moving average crossover up through the 200-day moving average on an index like the S&P 500 is one of the most popular bullish market signals. With a bell weather index, the motto "A rising tide lifts all boats" applies when a golden cross forms as the buying resonates throughout the index components and sectors.”

It is a rare occurrence to have both of these patterns occur simultaneously. Since the Three River Morning Star is created from weekly candles and the golden cross is created from a larger data set (50 and 200-day sample), the key reversal it is predicting is likely a longer-term event often indicates a rather large change in price over an extended period.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer