(GC) S-T Mo Failure Interrupts Gold Rally, Defines $1,765.9 Interim High, Risk

By: RJO MRTFebruary 6, 2012 11:19am CST 7726


Technicals, February 6, 2012; 7:05am

The gold market's failure Fri and overnight below some recent short-term corrective low detailed in the 240-min chart below certainly stems the recent rally and exposes an interim correction. As a direct result of this short-term weakness, the market has defined Fri's 1765.9 high as one of developing importance and the short-term risk parameter it's now got to recoup to reinstate the past five weeks' bull.


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In Thur's Trading Strategies Blog we advised a bullish trade consistent with the developing uptrend but with a very tight risk parameter at Thur morning's 1742.8 corrective low in the Apr Mini-Gold contract. The 240-min chart of the Apr Mini below shows the market's failure below this risk parameter and subsequent weakness that confirms at least an interim correction lower.


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In Thur's Trading Strategies Blog as well as last Tue's Technical Blog we discussed that while Jan's uptrend shown in the daily log chart above was indeed impressive and could well continue, the market's return to the middle-half of Aug-Dec's broader corrective range raised the odds of interim whipsaw risk. Fri and overnight's short-term momentum failure evidences this risk. Additionally, the fact that this short-term mo failure stemmed from Thur's 1759.3 high close that was just a buck-and-a-half from the (1757.8) 61.8% retrace of Aug-Dec's 1891.9 - 1540.9 decline on a linear scale shown in the daily close-only chart below could contribute to an intermediate-term correction lower.


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We remain bullish on gold from a very long-term perspective for a number of reasons, including:

  • the fact that the secular bull trend shown in the weekly log close-only chart below remains up
  • Aug-Dec's sell-off attempt is only a 3-wave and thus corrective structure as long as Dec's 1567 low weekly close remains intact
  • Aug-Dec's sell-off attempt retraced an exact and Fibonacci minimum 23.6% of the preceding suspected 3rd-Wave from Apr'09's 868 low to Aug'11's 1877 high, and
  • the erosion in the Bullish Consensus measure of market sentiment (www.marketvane.net) to its least bullish level (58%) since that that accompanied the end of Mar-Oct'08's major bull-market correction and resumption of the secular advance.

Ultimately, we believe these factors warn of a resumption of the secular bull trend to eventual new highs above 22-Aug's all-time high daily close of 1891.9. Given the market's current position still well within the bowels of Aug-Dec'11's $350-range however, the market's path to new all-time highs could be a highly challenging one.

These issues considered, Fri and overnight's setback defines Fri's 1765.9 high as one of developing importance and a short-term risk parameter from which an interim correction lower is expected. The setback thus far is of a scale insufficient to conclude the end of the broader recovery from 29-Dec's 1523.9 low, with a failure below 25-Jan's 1649.2 corrective low required to threaten the long-term bull enough to warrant defensive measures by longer-term traders. For shorter-term traders however, Fri's failure was sufficient to step aside from bullish exposure in order to circumvent the depths unknown of an interim correction lower. Needless to say, a recovery above Fri's 1765.9 high will mitigate this interim corrective threat and reinstate the past five weeks' uptrend that could produce gains thereafter.


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