Fractional Gains in Gold Indicate Solid Demand

May 15, 2019 - 5:59pm

 by Gary Wagner

You might not think that a fractional gain would indicate bullish market sentiment, however in the case of today’s $0.60 gain per ounce of gold it is the fact that gold has held steady relative to the respectable gain that occurred on Monday of this week.

Gold pricing had broken below the 50-day moving average on April 11, and the 100-day moving average on April 16. Prices would continue to drop with a double bottom which occurred on May 2 before this current rally would begin. The rally which began on May 2 was a bearish candle which closed at $1272. This was followed on May 3 in which engulfing bullish candlestick pattern completed, taking gold prices to $1281.

According to Investopedia, “The bullish engulfing pattern is a two-candle reversal pattern. The second candle completely ‘engulfs’ the real body of the first one, without regard to the length of the tail shadows. The Bullish Engulfing pattern appears in a downtrend and is a combination of one dark candle followed by a larger hollow candle. On the second day of the pattern, price opens lower than the previous low, yet buying pressure pushes the price up to a higher level than the previous high, culminating in an obvious win for the buyers. It is advisable to enter a long position when the price moves higher than the high of the second engulfing candle—in other words when the downtrend reversal is confirmed.”

Immediately after the engulfing bullish was formed gold prices slowly traded higher, but only gained seven dollars in five trading days. In fact pricing reached $1287 which was the .38% Fibonacci retracement point indicating potential resistance.

The fact that gold prices did not surge following the conclusion of an unsuccessful trade negotiation between the United States and China was somewhat bewildering. However that all changed on Monday of this week when gold surged from a low of $1280.40 closing just $0.10 off of the daily high of $1301.80.

This single day was a game changer on a technical basis as pricing broke above both the 50 day and 100 day moving averages. This would be the first occurrence of breaking above these averages since April 11 when gold broke below the 50-day moving average and April 16 when the price correction broke below the 100 day moving average.

The fact that gold has fractionally retraced since hitting Mondays high, and more importantly maintaining a price point above the 50-day moving average is a technical signal of strong demand and support at these price points. Based on our technical studies the next strong level of resistance is $1312, this is based upon a Fibonacci retracement of .23%. Therefore, I still strongly believe that the market will continue to rise back above $1300 with clear sailing until $1312 before any sizable retracement occurs.

Wishing you, as always, good trading,

Gary S. Wagner - Executive Producer


Bitcoin to Backfill? - by Joseph M. Wagner II

Today as of 4:00 PM EDT Bitcoin is trading up $450 nearly 6%. Futures trading Volume is still at historic levels and all seems clear for takeoff, but based on a technical rule BTC may be destined for a price dip back to $6500. This rule is known as backfilling. Filling the gap is witnessed when prices trade to their pre-gap levels. Gaps in BTC futures reflect the price change that occurred in the cash market is inactive.

That is not always the case in all markets this gap could be the beginning of a breakaway gap. StockCharts explains this type of gap as, “Breakaway gaps are the exciting ones. These occur when the price action is breaking out of a trading range or congestion area. To understand gaps, one has to understand the nature of congestion areas in the market. A congestion area is just a price range in which the market has traded for some period of time, usually a few weeks or so. The area near the top of the congestion area is usually resistance when approached from below. Likewise, the area near the bottom of the congestion area is support when approached from above. To break out of these areas requires market enthusiasm, and either many more buyers than sellers for upside breakouts or many more sellers than buyers for downside breakouts.”

Although today’s price action looks as though BTC is consolidating at $8000 I would be hesitant to view this as forming a base. This may be good news for traders who may have missed this most recent price advance as it will afford them the ability to buy on a dip as long as this is not a breakaway gap before taking out current resistance at approximately $8500.  



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Gold Forecast: Proper Action
On Sunday, May 5th, we sent out a trade alert to enter a long trade in June gold. We entered this position at $1285 with a stop at $1268. Today we sent out a trade alert to modify the stop to $1291.13
Maintain long gold at $1285. Maintain NEW stop at $1291.13, and put a limit order or (if available) an OCO (one cancels the other) to sell at $1310
An OCO order combines a stop order with a limit order on an automated trading platform. When either the stop or limit price is reached and the order executed, the other order automatically gets canceled. Experienced traders use OCO orders to mitigate risk and to enter the market.
A limit order is an order to buy or sell a stock at a specific price or better. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. A limit order is not guaranteed to execute.
Gold Market Forecast

The trade negotiations which which ended on Friday will certainly lead to more obstacles than previous trade talks. Higher tariffs: 10% to 25%, and the Chinese response, changes the dynamics and has raised the stakes, and when you add that Europe to the equation to a new level: Trade War 2.0.

Sentiment Indicator:
Gold -> Bearish
Silver -> Neutral
S&P 500 -> Neutral
Bitcoin -> Bullish