Gold looks like it’s heading lower

Yesterday’s market action was tumultuous with just about everything falling. 

All 30 of the Dow Jones Industrials were down, and 499 of the stocks on the S&P 500 closed lower. 

How’s that for an emphatic down day?

Because of the massive change in market sentiment yesterday, I will follow up yesterday’s gold coverage with a brief note and then get to cover the euro tomorrow.

I have a feeling I will not have a shortage of material to work with.

OK, yesterday, I laid out my case for the relief rally top in gold having been put in on Tuesday at $1,800 an ounce. Since writing that, I have had solid confirmation. 

Here is the latest hourly chart:

Gold spread betting chart

(Click on the chart for a larger version)

The market did move down through the support (marked by the purple bar) at the $1,780 area and short trades were touched. I am now short.

At the same time, the market moved below the tramline and is now heading for my fourth tramline in the $1,750 area.

This is a wonderful example of how to use multiple tramlines to forecast price and time targets. (If you haven’t seen my video tutorials on my tramline trading methods, watch them here).

But note the oversold momentum reading. This is a warning sign to expect a possible bounce.

This potential bounce may or may not be large. It could take the form of a narrow congestion zone between current levels and perhaps the $1,775 area, as the market attempts to push to the underside of the next higher tramline.

That would present short selling traders with a terrific opportunity to enter positions.

But with stock markets and currencies suffering hammer blows as the flight-to-cash gains momentum, I am not sure that gold can manage much of a bounce at all.

With yesterday’s downside action being so emphatic, my Elliott wave analysis of yesterday is looking good. I am expecting much lower prices just ahead in a large wave 3 formation.

• 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:

Trading with ‘momentum’

The essentials of tramline trading

Advanced tramline trading

An introduction to Elliott wave theory

Trading with Fibonacci levels

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