THE CLOCK IS TICKING ON GOLD´S BEAR PENNANT / KITCO GOLD

The Clock Is Ticking On Gold's Bear Pennant

By Kira Brecht

Monday August 03, 2015 10:19
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 (Kitco News) - The gold trade has turned into a snooze in recent days as the yellow metal consolidates between short-term resistance at $1,110 per ounce and short-term support at $1,073.70, per ounce, basis Comex December gold futures. The daily chart pattern offers clues for three potential trading scenarios ahead. Let's take a look.

The very short-term trend bias is neutral within the $1,110-$1,073 zone as the gold market digests the recent sell-off to a new five-year low. A potential bear pennant pattern could be developing on the daily chart, although this formation has not been confirmed. The "flagpole" portion of the possible pennant is seen as the quick sell-off that started July 17. The "pennant" portion is developing now.

In order to confirm the bear pennant and trigger the downside potential from this negative continuation pattern, a strong downside breakout and settlement would be needed below the pennant's bottom at $1,073.70.
 
The clock is ticking. These types of continuation patterns do have a time limit. Generally, these patterns resolve around 2/3 the way before the apex. As the price action nears the apex the time will be running out.
 
Three potential trading scenarios. What are the options ahead?

1. In order to improve the short-term trend outlook and destroy the bear pennant potential, gold would need to rally and close back above the $1,110 zone.
2. The pennant pattern dissolves and gold continues to consolidate over the near term in a neutral sideways range.
3. The bears confirm the pennant with a strong downside breakout and close under $1,073.

The measured move target. Technical analysis teaches us that chart patterns or formations offer measured move or trading targets. The measured move target from a bear pennant is calculated from the top of the flagpole —in this case around $1,146 to the bottom of the pennant —in this case around $1,073. Doing the math, $1,146 minus $1,073 equals $73. Apply that to the breakout point at $1,073 and the target lands at $1,000 per ounce.
 
Markets and traders like big round numbers. With gold so close to the $1,000 per ounce level, the yellow metal is vulnerable to a test of that zone in the days or weeks ahead. But, perhaps that would be the level needed to attract longer-term bargain hunters back into gold.
Plan your trade and trade your plan.