Quick Recovery of 20-Day Line is Bullish
Since around February 23 gold has been trading above the 20-Day line. Today was the first direct test of the line as support since then. Although it failed to maintain support, gold may close above the line with a bullish doji hammer candlestick pattern. Both a close above the 20-Day MA is bullish, and the fast recovery of the line is also bullish. It points to the possibility that a correction may be complete, or at least for now.
Upside Breakout Above Tuesday’s High
An upside breakout will be triggered on a rally above today’s high of 2,334, while a drop below today’s low of 2,291 signals a continuation of the correction. Also, gold could trade tomorrow inside day, which would provide a setup for Wednesday. A rally will be heading up into a potential resistance zone that arguably starts from around 2,354. Also, keep an eye on potential resistance around the 8-Day MA at 2,362 and this week’s high of 2,389.
Long-term Base Breakout in Play
Gold broke out of a multi-year basing pattern recently, which greatly improved its chances to continue to strengthen and trend higher following a correction. The degree and length of the current correction will tell us something about underlying demand. It should not be surprising if it stays strong given the significance of the long-term breakout. Upward momentum really kicked in upon the breakout of a symmetrical triangle on February 29. By March 5 a new record high in gold had been reached.
Drop Below 2,291 Starts a Deeper Retracement
There will likely be a retracement to test support around the orange 50-Day MA at some point during the advance. However, so far, it doesn’t look like it will happen in the current correction. Nonetheless, as noted above, a drop below today’s low of 2,291 could accelerate that scenario. But first there is potential support around the 2,261-price area, which the 38.2% Fibonacci retracement of the bull upswing, beginning from the February 14 swing low.
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