Gold prices broke below $1311 negating the potential triangle
Competing bullish and bearish patterns leave the outlook mixed in the short term
Cluster of wave relationships and support appear at $1295-$1304; use this price zone to define the near term trend
On Monday, we highlighted the importance of $1311 in gold prices. On Tuesday, gold prices did break down below $1311, which negates the triangle pattern we were following.
We now have competing bullish and bearish patterns at play and the price behavior around $1295-$1304 will tip the hand as to which pattern we will favor.
As you can see in the chart below, we have a downward sloping orange price channel where gold prices are starting to pressure the lower bounds. Equal wave measurements of the 2 legs lower show up near $1301. Additionally, the May 2, 2016 high of $1304 shows up in the same area.
Lastly, we have a blue upward sloping trend line, which has defined price action since December 2015. It crosses near $1295. Therefore, we have a bundle of wave relationships and support showing up in the $1295-$1304 price range. This is a hot spot where traders can position with a good chance of a good risk to reward ratio. [To learn more about trading with positive risk to reward ratios, see pages 3-9 of this Traits of Successful Traders guide.]
If prices hold above the blue trend line, then it suggests the uptrend is still in force and the door remains open to higher levels near $1375 and possibly $1435.
If the blue trend line breaks, then the break may indicate gold prices have topped. We will be keeping an eye out for impulsive declines to $1200.
Bottom line, the blue trend line provides a hot spot where something is about to give. Either gold prices are supported and continue higher or the 9 month trend is over.
