Technical Trading: Gold Jumps To Test Key Line In The Sand For The Bulls
Monday October 12, 2015 10:32
(***** News) - Gold prices surged higher in early trading Monday as follow through buying from last week's strong close propelled the market to a two-month high.
A key line in the sand. Bullish momentum is rising and positive, but the gold bulls have run into a strong resistance ceiling at $1,169.80, the Aug. 24 high for December Comex gold futures. The bulls have hit the so-called "line in the sand" at the $1,169/$1,170 zone. This represents the top of the recent consolidation phase and sustained gains are needed above $1,170 to open the door to a fresh buying wave.
Bullish factors:
- Daily momentum, as measured by the 14-day relative strength index (RSI) is rising and positive at 63% in early action on Monday. Momentum is not overextended and below the 68% reading hit in last August. Sustained numbers above the 68% would support a bullish outlook in the days ahead.
- A short-term bottom has formed on the daily chart at the July low at $1,073.70. A series of higher daily lows are seen at the Sept. 11 low and then the Oct. 2 low.
- December gold futures are trading above their 20-day, 40-day and 100-day moving average lines, which is a bullish signal for the short and intermediate term trend following crowd.
Challenges for the bulls:
- The gold contract is currently bumping up against the upper daily Bollinger band line, which offers resistance at $1,165.30. Markets often have difficulty sustaining gains above the upper Bollinger band line.
- The 200-day moving average line at $1,178.10 is major long-term resistance for the market and will be a key challenge for the bulls.
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Scenario A: If gold bulls succeed in an upside breakout above the Aug. 24 high and the 200-day moving average –it would open the door for a strong rally wave. The next key upside chart objective lies at the $1,206-$1,207 per ounce region, the early and mid-June highs for gold.
Scenario B: If the $1,170 resistance ceiling holds firm, gold will be vulnerable to a short-term period of "backing and filling" in the wake of the recent strength. Initial support lies at $1,135.90 with strong swing low support at $1,103.80.
Bottom line: Gold has rallied to a significant technical juncture. Action around the $1,170 zone will be an important clue about near term direction for the yellow metal and if the recent rally has enough legs to continue.
By Kira Brecht, contributing to ***** News;
Follow her on Twitter @KiraBrecht
