Wedge Breakout: After breaking above a falling wedge pattern seen in the 4H chart, gold (XAU/USD) stalled at 1323, and has been trading in a triangle consolidation.
The wedge breakout was a bullish signal. The rally pushed gold (XAU/USD) above the cluster of 200-, 100-, and 50-period Simple Moving Averages (SMAs). The 4H RSI was pushed up above 70. Now if price can hold above the SMAs, the wedge breakout is still valid, and if the 4H RSI holds above 40, there is maintenance of the bullish momentum from that breakout.
ABC Correction; Support, Upside risk: However if price breaks below 1305, the triangle can evolve into an ABC correction, which could still stay be within the bullish context. if price finds support in the 1295-1300 area. A break below 1290 will likely invalidate the bullish outlook, and put the focus back toward the 1280 low, with downside toward 1270 (on the daily chart, there is a triangle support that might challenge a downswing if gold gets to around 1270).
If the wedge breakout remains in play, there is upside risk toward the 1330 level. (on the daily chart, there is a large triangle, with resistance that will challenge a rally around 1330).
Consolidation range: Since July’s high of 21.57, silver (XAG/USD) fell to 19.73 and found support last week. Since then, it has essentially been trading within a consolidation range with resistance at 20.17.
Bearish market: Note that the 4H chart is very bearish, with the 200-, 100-, 50-period SMAs sloping down, in bearish alignment, and spreading apart. Price is also trading below all of these SMAs. The left half of the chart tells a different story, so we know the downtrend has been short-lived, but has been strong.
Bullish outlook: Now, if price can push back above 20.20, it will likely also break above the falling trendline from July, which would shelve the bearish outlook, and revive a bullish one. In this scenario, the RSI should at least break above 60 to show loss of bearish momentum, and break above 70 to show strength of bullish momentum. In this breakout scenario, we can expect a short-term target of 20.70-20.80, where we have the 200-period SMA, and a previous resistance pivot.
Bearish scenario: A break below 19.70 would open up a bearish outlook, exposing the 2014-low around 18.64.
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