In our last article, we looked at the continued top-side run in Gold prices as a new near-term high had just printed at $1,303.62. As we advised at the time, pushing the top-side of the move could present challenges as Gold’s price action was considerably distant from any recent support levels. Instead, traders would likely be better served for support to show at a deeper support level before looking to trigger into long Gold positions.
It took a little over a week, but support has finally shown with yesterday’s Doji formation; and today’s daily candle moving more than 50% above the heavy-down candle on Monday opens the door for a potential morning star formation (shown below).
Created with Marketscope/Trading Station II; prepared by James Stanley
The low of yesterday’s Doji came in at the 61.8% retracement of the most recent move in Gold at $1256.47, taking the April 22nd swing low to the May 2nd swing high; and this can be used for stop placement for those looking for top-side resumption moves in Gold.
The primary point of obfuscation with the setup at this point is the US Dollar and the question of whether the down-trend is ready to resume. We discussed that prospect in this morning’s Market Talk, and while it doesn’t look likely that the Dollar drain is done just yet, timing, as usual, will be of the essence in looking for that resumption lower in the Greenback.
To trade the morning star pattern, traders will normally look to lodge stops below the low of the Doji, which would be approximately ~$20 away from current price action. Targets can then be set at $1,295, which is the prior swing high, then $1,301.61, which is the 50% Fibonacci retracement of the 2008-2011 move, and then $1,315 (1-2 risk-reward ratio).
For those that want to take the position a bit more conservatively, stops can be lodged below the $1,251.74 Fibonacci level that has provided numerous instances of support/resistance over the past three months. This wider stop would necessitate larger targets, with an initial target of $1,301.61 offering slightly better than a 1-to-1 risk-reward ratio, but deeper targets can be set towards prior price action swings of $1,321, $1,345, and then $1,391.
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