The Convincing Bear Case for Gold

We just closed the month with some very ominous price action in the spot gold market (XAUUSD). In fact, the market looks so interesting that I’ve written this special article specifically focused on gold.

Let’s start with a look at the monthly chart for XAUUSD.

As you can see, we closed last month with a very nasty key reversal bar. That’s where the market made a new high and then closed on the very low. This kind of bar indicates that the sellers were firmly in charge of the market, not the buyers.

Key reversals tend to point in the direction the market wants to go. In this case … down. On this chart there are several examples of previous key reversals that helped send the market south over the last several years.

But you can’t look at key reversals alone. You need to examine them in the context of the overall market pattern and trend to determine what’s truly significant for the near future direction of that market.

This latest key reversal is particularly ominous because it occurred at the 1350-1400 price level where XAUUSD has been rejected before on multiple occasions. This has been a very difficult price area for spot gold to get through. And by closing on the low point of the month, it would appear that lower prices are on the way this coming month.

Now Let’s drill down to a weekly view of XAUUSD.

Things look less definitive at this level.

The market’s been trading in a range from 1200 to 1360 for most of the year. The most relevant pattern I can spot here is the reverse triangle which was violated to the upside in what proved to be a false breakout.

Reverse triangles are not the most reliable of patterns, though. If that was all I had, I wouldn’t be feeling too bearish.

But when you add in the false breakout, the rejection at 1360, an unfilled gap as the price plummeted three weeks running, and the recent close near the low (back inside the reverse triangle) … well, these things add up

XAUUSD is going down.

So which price levels am I projecting for this near-term drop?

There’s a sloping uptrend line worth considering here. The price should drop to at least that line, which means about the 1240 level. After that, any penetration below that area would open up a larger drop below 1200.

To get a clearer view, let’s drill down even farther to the daily chart for XAUUSD.

Now things look rather interesting again. I can see a megaphone top here. That would project a drop to the neckline at 1210 or thereabouts.

Supporting this are the key reversals we’ve seen since the high at 1360 (the apex of that megaphone top). Especially the first key reversal, which left a small gap that was never filled as the market headed south.

There’s been key reversals all the way down so far. It’s been the stairway to hell for gold bulls who insisted on hanging on despite all the bearish warning signs.

That being said, there are some small signs of support at the 1280-1290 level where we are now. The market has made bullish key reversals in this area previously, so the free fall in gold might be arrested in the short term.

So I’m not going short again just yet. Let’s what kind of a bounce — if any — we get before the downtrend resumes.

For now, keep in mind the monthly key reversal from 1360, the recent weekly key reversal and the megaphone top showing at the daily level. These are all very bearish but going short XAUUSD right now might be premature in light of recent support.

However, I don’t expect that support to last very long. Once it’s gone, the next stop is the neckline of the megaphone top all the way down at the 1200 level.

To learn more about profiting from the continuing volatility in gold, I suggest attending my special webinar that’s coming up soon: October 5th, to be exact.

You can register and save your seat here — it’s free to attend. I’ll show you exactly how I evaluate gold for the best possible trades. I’ve had terrific success trading spot gold using my Pattern Trader methods and I’d like to show you more details about exactly how I do it.

[Go here to save your webinar seat now]

All seats are available on a first come, first served basis only — I hope to see you there.

And that’s it for this week’s special spot gold analysis. I hope you have a healthy and prosperous trading week.

If you have any questions please email me: [email protected]

Mark Shawzin

Pattern Trader

 

 

 

 

 

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