Wedge Breakout: The 4H Gold (XAU/USD) chart shows a market that has just broken above a falling wedge that has been developing since mid-July. Last week, traders bid up gold price above not only the wedge pattern, but also above the cluster of 200-, 100-, and 50-period simple moving averages (SMAs) in the 4H chart. Still, the 100-, and 50 period SMAs are below the 200-period SMA, which is a sign that the bullish development is still very young in this 4H candlestick time-frame.
Consolidation: This week, traders have been consolidating last week’s gains in gold, holding price under 320 for the most part. Price is seen oscillating around the 200-period SMA, which is flat. If not for the bullish breakout that preceded this week’s consolidation, we would have to say gold is trading sideways with no bias. But, there IS a slight bullish bias.
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Bullish bias: When you look closer, at the 1H chart, you can see more bearish bias. Indeed, if we do not look at price action before July 30, gold would look very bullish in the short-term.
1) The 200-, 100-, and 50-hour SMAs are in bullish alignment, and price has been trading above them for the most part, at least clearly above the 200-hour SMA this week.
2) The RSI has tagged above 70 several times, but held above 40 throughout the week, a sign that the bullish momentum from last week’s bullish breakout still remains.
(click to enlarge)
Descending Triangle: There is a descending triangle, which in a way reflects weaker and weaker bulls. Therefore, a break above the triangle resistance at 1315 could be an early bullish continuation signal. We would have to see price break above 1318 to say that bulls have taken back control. Then, if upon a pullback, price can stay above 1310, traders should gain more confidence for the bullish outlook in the short-term.
A break below 1305 could open up a short-term bearish outlook, but we should monitor the 1295-1300 level for buyers again. After a bearish breakout, if there is a pullback but price can hold below 1310, then the case for the bearish outlook can be stronger.
A break below 1290 would be needed to invalidate last week’s bullish breakout for Gold (XAU/USD).
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