Gold hits my second Fibonacci target!

Stock markets have taken centre stage in recent days. But I thought I would cover gold today since it has stealthily made it to my second upper Fibonacci target.

In my last post on 20 January, I noted that it had rallied to my first target in the $1,260 area. I also noted that the bounce off the 31 December $1,182 low appeared genuine and that this low would probably hold for some time.

When I applied my tramlines to the hourly chart, I noted that the gap created on 2 January was a signal that the market wanted to move up. This gap was created on a solid tramline break, and that gave me a clear buy signal.

This gold gap mirrored the gap in the Dow chart that I have been highlighting in recent posts. Both occurred on the same day, which confirmed the contra relationship that currently exists between them. And both gaps gave good trading signals.

Are we in a C wave?

This was the chart last time showing my two targets:

Gold price spread betting chart

This is the current position showing the hit on my second target:

14-01-29-MWT01

This is the daily chart showing the A and B Elliott wave labels. If this is correct, we should be in a C wave – and the upper tramline break is supportive of this idea. This C wave should reach a level at least close to the A wave top above $1,400.

The key consideration this morning is this: the current pull-back off the Fibonacci 50% target is a possible kiss on my upper tramline. This implies the next move is a ‘scalded cat bounce’ up and away from the tramline. This is a very common pattern, and I have shown many examples of these in my emails.

The next move in gold is likely to be up

The alternative scenario is for the kiss to fail. The market would then plunge through the tramline and back inside the trading channel. If this occurs, I would most likely have to abandon my A-B-C theory.

Let’s zoom in for a closer look:

14-01-29-MWT02

I have drawn in the Fibonacci levels for the last significant wave up. And the market is currently testing the Fibonacci 62% level. This is also where it meets the upper tramline. Both levels are areas of support, which means there is extra-strong support at this $1,250 level. A crossing of two lines of support or resistance such as this is a major event. It can often provide excellent low-risk trade entries.

Also note the positive momentum divergence (red bar) at the low. This indicates a lessening of short-term selling pressure.

Putting all this together, I can make a case that the next move in gold is likely to be up.


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Gold is at a short-term crossroads

In recent posts, I have mentioned that the bullish sentiment, as measured by the Daily Sentiment Index (DSI), had reached an astonishing sub-10% level. This was a major factor going into my forecast for a rally off the $1,182 low. The most recent reading I have is now a much more normal 30% bulls.

With the market having risen by a little over $100 off the low, this increase in bullishness is not surprising. But is it enough to erase the excess gloom?

In bull markets, traders talk about the ‘froth’ when prices get too stretched. There seems to be no equivalent phrase in bear markets when they become oversold. What is the opposite of froth, I wonder?

In any case, gold is at a short-term crossroads today. And with the Fed announcement due out later today, the resolution should not be far off.

• If you’re a new reader, or need a reminder about some of the methods I refer to in my trades, then do have a look at my introductory videos:

The essentials of tramline trading
Advanced tramline trading
An introduction to Elliott wave theory
Advanced trading with Elliott waves
Trading with Fibonacci levels
Trading with 'momentum'
Putting it all together

• Don't miss my next trading insight. To receive all my spread betting blog posts by email, as soon as I've written them, just sign up here . If you have any queries regarding MoneyWeek Trader, please contact us here.
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2 Responses

  1. 29/01/2014, gracoo2 wrote

    The opposite of “froth”?
    How about maximum spring compaction?
    GC

  2. 29/01/2014, AM wrote

    Opposite of Froth?

    ‘Sludge’

    The markets are looking quite sludgy today, 2 years ago they were frothy

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