swing trading

Gold Analysis (April 7, 2017)

| Swing Alpha on 7 Mar 2017 12:00 AM
Gold Analysis April 7, 2017

Last week, I expected the gold-price to fall after having sat below the 200 SMA at very low volume for quite a while. And on Wednesday, it finally did as I expected and fell all the way from $1257.35 down to $1243.57; a $13.57/oz. fall. But while I expected it to go all the way down to the trendline at around $1220.00, it instead reversed and went back up to around break-even by the end of the day.

This shows why using a trailing stop is often a good idea.

On Thursday, the price fell down to the 10-day EMA. But the real action started after the Thursday U.S. close, during the Friday Australian and Asian sessions. During that time, the news media started reporting that the U.S. had launched missiles and hit an airport in Syria as retaliation for the government there allegedly using chemical weapons in its war with revolutionaries.

The gold market responded to this with a rally that finally broke above the 200 SMA. If the candle had closed above this line on the daily charts, it would have been the first time this had happened since the Nov. U.S. Presidential election.

This was a bit of a gutsy move by gold bulls considering that U.S. non-farm payrolls was due to come out the following morning. But I guess they had become confident after defeating the Wednesday sell-off.

In any event, non-farm payrolls came out on Friday morning in the U.S. And wow was it bad.

While analysts had expected an increase of 180,000 jobs, it instead increased by only 98,000. Prior to the report's release, the lowest number I had seen estimated was 140,000. So this report was lower than even the most bearish forecasters had predicted.

This should have helped the gold rally quite a bit.

However, when gold-bulls attempted to use NFP as an excuse to push the price up further, they were met with strong resistance. As a result, the price simply stayed at its post-Syria-attack level of around $1262-$1267/oz.

Still, it looked like the price was going to close above the 200-day SMA for the first time since election night. However, at about 12 noon EST a rush of sellers came into the market and pushed the price back below the 200 SMA.

The sellers may have been reacting to reports that tensions in Syria were deescalating as Trump declared he was not going to remove Assad from power. Or it may be that the sellers came into the market because of the failure of the NFP rally and then continued as the deescalation reports came out. It's not clear which event happened first.

What is clear though is that a lot of gold-bears had been hanging around waiting for a chance to sell...and they saw all of this chaos as a great opportunity.

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.

Another thing to keep in mind is that volume is still extremely low when compared to Nov.-Feb. levels. The big hedge funds and banks are refusing to play. So if we see the price move strongly in one direction, it could reverse quickly as major institutions move in.




How to trade gold this coming week.

If Monday prints a red candle, this is an opportunity to go short. A stop can be placed just above the 200-day SMA at around $1263.22 with a take-profit at $1227.94. This TP is just above the December uptrend line.

Alternatively, military tensions could escalate again and gold could close above the 200 SMA. If this happens, a long trade at $1260 with a stop-loss at $1250.58 and a TP at $1288.25 (just below the 2011 downtrend line) can be taken instead.

Either trade will produce a 2:1 reward/risk ratio.

3 Mar 2017 4:38 PM | Anonymous

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