Gold (daily chart) as of Tuesday (10/18/2011) has made a pronounced drop below its wedge pattern consolidation, which hints at a potential continuation of the bearish run that originated from the early September all-time high around 1920. This wedge pattern, which can also be considered a large inverted pennant pattern, represented a slightly bullish pullback consolidation that occurred after gold’s plummet down to the 1532 low extreme back in late September. After that low was hit with a strong hammer candle, price consolidated into a tight and converging three-week pullback move (that conveniently rose to around the 38.2% Fibonacci retracement of the bearish run’s high-to-low), before making the current tentative breakdown of the wedge pattern. Further downside momentum on the current bearish move could go on to target the 1550 support region.
(Click on chart to enlarge. Forex chart key: price on 1st pane, Stochastics 14,3,3 on 2nd pane; horizontal support/resistance levels in black; uptrend lines in green; downtrend lines in red; 50-period simple moving average (SMA) in orange; 100-period SMA in brown; 200-period SMA in dark blue; Fibonacci levels in magenta.)
James Chen, CTA, CMT
Director of Technical Research and Education