Although gold futures closed lower on the day, they did so with a higher low as well as a higher high when compared to Tuesday’s price range. As of 3:20 PM EDT June futures are trading down $3.90 and currently fixed at $1281.70. What is extremely noteworthy in today’s trading activity is the intraday high of $1292.80. This is just above the most recent high of $1290.60 which occurred on Friday, April 26th.
This break above the former high creates a simple pattern that was coined by Steve Nison, the CMT market technician that was the first analyst in the United States to educate traders about Japanese candlesticks in the early 1990s. Although his forte is the use of candlesticks, this pattern he created is not a candlestick pattern.
In Steve Nison's book Japanese Candle Charting Techniques, he coined the term "scouting party" for a particular chart pattern. According to his definition, these scouting parties are sent in by big traders, commercial accounts, or even locals to test the resolve of the opposing troops. For example, the bulls will try to move prices above resistance. According to Nison, in this type of battle the bulls will have to analyze the fortitude of the bears. If the bullish scouting party can set up camp in the bears' home field -- that is, above the resistance -- then a "beach head" is formed.
Simply put a scouting party is any time that traders challenge either a current support or resistance level by taking prices above resistance or below support. However, the key to this pattern is the beachhead or the ability for traders to move current pricing above resistance or below support on a closing basis. This would be conformation for the pattern.
Today’s intraday high at $1292.80 can certainly be identified as a scouting party. The key is whether or not gold prices will be able to continue to move to higher ground and effectively close above $1287-$1291.
Most importantly these patterns are only a mathematical description of market action. It is the fundamental events currently at play that will move the market to higher or lower pricing. Of key concern is the current trade war between the United States and China and whether or not these two superpowers through their trade negotiations which will begin on Thursday can make some headway and bring this dispute to a satisfactory resolution.
There are also geopolitical concerns over a recent missile test by North Korea. Add to that the tension when this week the United States sent a naval task force including the aircraft carrier Lincoln into the Persian Gulf, this in response to “chatter” indicating potential threats against the United States by Iran.
Wishing you, as always, good trading,