Friday, April 2, 2010

Squeeze Time For Gold

Gold's four month correction, a patience testing ordeal for the gold bulls, is now at a pivotal point as I illustrated in my post of a few days back. This is deduced from conventional technical analysis, but what about the fractal analysis that has been calling gold's major turns like a square dance? (click to enlarge)

If one were to note the major technical features of gold now, you would draw a major resistance level at $1130 and a secondary resistance at $1145. A big inverse head and shoulders bottom to the correction also presents itself complete with a candlestick reversal at the head. The 140 ema and 200 ema are shown; the 140 is a good divider of bull and bear markets. If you see anything take up residence below its 140 for more than a couple of months - well that's not so good and its time to rethink its bull market. Gold has been bouncing off of a very smooth, rising 140 since last July, when the current climb began, and it bounced again Feb. 4 and last week without any distortion of these moving averages - like a small rubber ball bouncing off a massive brick wall. So it looks like a major up move coming by conventional technical analysis.

Well, the fractal analysis says the same thing! Back on Feb. 23, David Nichols, a leading fractal gold analyst, had this to say:

"I have been expecting gold to struggle to get through the significant $1,128 energy level, and sure enough, it’s struggling. But it is following a typically bullish path that indicates the breakthrough should arrive shortly. I often discuss how it takes 3 or 4 attempts to get through a big energy level like $1,128, which is why I mentioned this ahead of time as being likely at $1,128, as this is such a prevalent pattern in market fractal patterns."

If you look at where Feb 23 was on the resistance level in the above chart, you see that it was about in the middle, so he was right about a major struggle ensuing at that level. And back on Mar. 2 he was right about that secondary resistance at $1145:

"The good news about finally overcoming a stubborn level like $1,128 is the breakout is often very strong and linear. But in this case there is another potentially troublesome energy level overhead around $1,145, but after so much testing and probing of $1,128, I’m thinking now that $1,145 will not be so difficult, and should only briefly impede further upside progress."

We are now at $1127, and this trip to the fractal energy barrier looks good for final breakage.

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