10-Day Average Flip Confirms Bearish Behavior

Conversely, Monday’s sharp bearish retracement to a seven-day low that included a breakdown below the 10-day average. There was a chance that the 10-day average would show signs of support but instead Tuesday’s high successfully tested resistance at the 10-day line, confirming a flip from support to resistance. That is bearish behavior. In addition, a narrow range inside day inverted hammer pattern formed below the 10-day average and in the lower third of Monday’s trading range. That is also bearish behavior, which confirmed today with a breakdown from that inside day, followed by further bearish signs.

Monthly Structure Adds Downside Pressure

This puts gold at a critical support zone that is at risk of failure. The monthly chart adds to that risk, as it shows overhead supply keeping downward pressure on prices. A potentially bearish monthly shooting star candlestick pattern has formed for December. The low for the month and therefore a key pivot is December’s low of $4,164. This is interesting since a sustained drop below today’s low puts gold in a position to challenge support near the 50-day average, now at $4,174, above this month’s low.

50-Day Average Marks Critical Defense Zone

Keep in mind that the potentially bearish monthly pattern is not valid until there is a breakdown below December’s low. Until then strong support is anticipated near the 50-day line, now at $4,175. But given the bearish monthly pattern, new trend highs in January seems unlikely, and an inside month more likely.

Bullish Reversal Requires Key Levels to Reclaim

Alternatively, if support holds near the 20-day average and is followed by bullish signs, the long-term bull trend could reassert itself as a short-term pullback completes. It is interesting to note that Wednesday’s weakness shows a break below the near-term uptrend line, adding to potential downside risk. A sustained advance above today’s high of $4,373 would show a one-day bullish reversal and the potential for further upside.

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