ARCHIVED COMMENTARY
Expect More
Gold Selling
For edition of May 22, 2006
Gold took a savage pounding on Friday, and although prices finished off their lows, more selling appeared likely next week. By my runes, the June Comex contract “should have” found support at 663.50, a well defined hidden pivot. Instead, the first time the futures encountered that number, on Friday morning, they smashed through it immediately. All subsequent rally attempts failed to push more than a point or so above the pivot, suggesting it had become resistance from the moment it was violated.
These hidden pivots are not chopped liver, as I like to say, and when a stock or commodity fails to bounce from them, it is usually a very reliable indicator that the downtrend will continue. That said, I have no more downside pivots to offer at the moment for June Gold, which finished the week at 657.00, up somewhat from an intraday low of 651.00. However, there are two precise numbers that can serve to guide us nonetheless. The first, at 636.00, would be an exact, 50 percent retracement of the rally begun from $540 in early March. The second, at 613.00, would represent a 0.618 retracement of the same bull leg. My hunch is that the pullback will continue at least to the first before the correction has run its course, and to the second if 636.00 is exceeded by more than $1 or so.
(Click on chart to enlarge)
However, I would be impelled to reconsider my short-term bearishness if June Gold were to rally sharply enough to create a bullish impulse leg on the 15-minute chart. As of Friday’s close, it would have taken a 689.00 print to do so, since a healthy impulse leg must exceed at least two prior peaks to qualify as such. Alternatively, using a hair-trigger based on the 3-minute chart would lower that threshold to 671.10, although the signal would not be quite as reliable. One more thing: For the latter signal to be valid, the rally segment between peaks #1 and #2 would need occur without a pause of more than a single bar – that is, it would have to occur in one straight shot, no pullbacks.
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