Last week I showed you a daily line chart for GLD which I called a coiling triangle as the price action was getting more compressed as it traded toward the apex. This daily line chart shows the breakout and backtest. Most technicians are aware of the triangle consolidation pattern but its implications may not be understood by most.
Now I would like to show you a daily bar chart for gold which shows you the power of this particular triangle. If you recall last week I showed many bullish rising wedges in many of the precious metals stocks that looked very bullish. They have morphed a bit but the essence of the bullish rising wedges are still there. This brings us up to the triangle that has been forming in gold. Just like all the bullish rising wedges we looked at on many of the PM stocks, gold has formed it own halfway pattern which is the triangle that everyone now sees. What makes this triangle halfway pattern so important is the way it formed. Whenever you get a vertical move in a short period of time that is called a flag pole. The price action then consolidates that vertical move with a small, usually less than three weeks, flag, wedge or triangle. In gold’s case it formed a triangle.
There are several ways we can measure out for a price objective. The first method on this daily log scale chart is what I call the BO to BO, breakout to breakout method. The measurement starts at the breakout of the lower consolidation pattern which in this case is the bullish rising wedge, up to the first reversal point in the blue triangle halfway pattern. You then take that measurement and add it to the breakout point of the blue triangle halfway pattern to get your price objective which is up to 1391 black arrow.
The other measurement technique I use is the impulse method which measures the impulse move from the lower consolidation pattern, again the blue blue bullish rising wedge, which starts at the last reversal point before the breakout. Take that measurement and add it to the last reversal point in the blue triangle halfway pattern to get a price objective up to 1382 as shown by the blue arrows.
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