The odds are backing gold

On Wednesday, I showed gold hitting a tramline T3:

Gold price spread betting chart

(Click on the chart for a larger version)

And I also showed another competing down-sloping tramline set in a battle of the tramlines.

Since then, the matter has been resolved – to the downside:

Gold price spread betting chart

(Click on the chart for a larger version)

After several tests of T3, the market moved lower to T4. Remember, I am drawing T3 and T4 equidistant off the first higher pair.

Let’s just take a moment to understand what is happening here. From the trading last week, I am able, with my tramlines, to establish price targets for this week.

How did the market know where to pause in the future?

OK, the battle has been won by the up-sloping tramlines, but will they win the war?

Last time, I had these down-sloping tramlines drawn in:

Gold price spread betting chart

(Click on the chart for a larger version)

But although the upper red line is secure, what about the lower one?

I have taken only a short time-frame from 13 January – but is this a long enough period to make a secure tramline?

Let’s now go back further in time and see how the chart looks:

Gold price spread betting chart

(Click on the chart for a larger version)

If I go back to early December my new T2 now fits the highs and lows much better, lying somewhat below its first placement. That is a crucial adjustment.

And I have a beautiful T3, passing through the two major lows. Also, T1 is even stronger, as it passes across the major December highs.

Now I have much more confidence in these tramlines.

And now note that the market this morning has fallen to the crossing of two major tramlines (pink zone). This is major support.

 

A major support – so what next?

Could this be a great set-up for a long trade?

We know that sentiment towards gold has turned very bearish – even many long-time bulls are throwing in the towel.

Just today on Bloomberg, it is reported that George Soros, one of the most prominent celebrity traders, has reduced his holdings.

Naturally, the less sophisticated (and less politically connected!) will read into this as a signal to sell and even short gold, believing it will go even lower.

But when a market guru of his standing is reported in the mainstream media to have taken this action, then we must suspect that the bear move is coming to at least a temporary end.

There is a well-known phenomenon that when a mainstream magazine has a cover with a blatant message – such as ‘BUY SHARES’ – you can bet that this comes after a large bull run, and that a top is nearby. It is called the ‘magazine cover indicator’. It applies most glaringly in US magazines.

You rarely, if ever, see such a message after a long bear move! Usually, the message is full of dread. That is the time to buy, of course.

The odds are now stacking up in favour of at least a decent bounce.

But it may have to move towards my lower target first:

Gold price spread betting chart

(Click on the chart for a larger version)

The war is not yet over!

• 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

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