In last week's gold analysis, I stated...
“Gold has now printed a bearish 'exhaustion candle'. This is a candle with a small body, small or no lower-wick, and large upper-wick.”
“This usually means the price is about to fall. But it's sometimes a false signal. So we really need to wait until we see a red candle on Monday to confirm it.”
On Monday, we did not see a red candle. Instead, we got what is called a “bullish dragonfly doji” or “umbrella” candle. This is a sign that sellers very aggressively tried to push down the price and failed. It usually means that the price is about to swing back up.
Sure enough, the price did go back up on Tuesday. But the swiftness of the move was a big surprise to almost everyone. Gold broke through the 200 SMA in the morning and kept going up, and up, and up. By the New York close, it had reached $1272.44.
From there, it kept going up for the rest of the week until it closed Thursday afternoon at $1287.79. If it had not been for the Good Friday holiday, it might have closed the week even higher.
Most analysts have tried to explain this sudden move up as having been caused by geopolitical tensions between the U.S., Syria, Russia, and North Korea. But the geopolitical tensions actually started on Friday. So this doesn't really explain why gold waited until this week to have a big rally.
A more likely explanation is that a lot of swing traders didn't want to hold their long trades over the weekend. So the initial rally caused by a bad NFP report and war on April 7 was squelched by profit-taking. But once Monday rolled around, they started buying all over again. And this time, no one took profits.
The price is now moving too fast to catch entries on the daily chart. But the four-hour chart shows that the price is far above the 10 EMA. Over the past few days, it has fallen into a pattern of consolidating above this EMA and then moving swiftly up as the EMA nears it.
These incidents where the price touches or comes close to the 10 EMA can be used as long entry points.
If this strategy is used, the bottom of the previous candle can be used as a stop. For a take-profit, you can either use the 2011 downtrend line at around 1300 or just dispense with it and use a trailing stop instead.