Gold fell yesterday to a bear-market target at 1137.50 that has been 15 months in coming. Clearly, this is an important number, and one needn’t be a chartist to appreciate the sinuous beauty of the downtrending ABC pattern that produced it (see inset). However, its usefulness lies not in any ability to predict the future, since we never pretend to have a crystal ball. Rather, it can serve as a reliable benchmark for determining whether the bear market is spent. According to our proprietary method of technical analysis, a decisive breach of the support would be akin to the groundhog seeing his shadow: six more weeks of winter. Whether or not the bear market would persist for a mere six weeks is an open question, but the implication would remain nonetheless that still more pain awaits gold bulls.
What would constitute a decisive breach of the support? Given the beautifully etched perfection of the pattern, a print perhaps 4-6 points below the target would suffice — either that, or a two-day close beneath it. Alternatively, if bulls are about to take charge, ending a bear market that recently entered its fourth year, we should expect to see abcd rally patterns in all time frames start to exceed their ‘d’ targets regularly. It is for that reasons that bulls should take encouragement from Wednesday’s initial rally off the long-term Hidden Pivot target. The rally need only have achieved 1,150.10, but it actually topped 2.40 points above it, at 1152.50. This is a good start. However, the futures had given up nearly all of the day’s gains by Wednesday evening and were threatening to take out the intraday low at 1137.10. If so important and compelling a target were to provide support for only a day or two, that would be quite bearish.
The most bullish thing that could happen over the near term would be for the futures to leap above 1176.30 over the next day or two. That would surpass several prior peaks on the hourly chart, effectively getting gold off the launching pad. Until such time as this happens, however, the jury will be out. _______ UPDATE (6:36 p.m. EST): There was little to encourage in Thursday’s price action, even if the 1137.50 support ballyhooed above has held thus far. If and when this major Hidden Pivot is breached, look for the futures to hit 1114.60 on the next lurch lower.