Price Vibrates Within Trend Channels

Is there significance to the day’s high of $3,149 that is supportive of a pullback? That high happens to be near resistance represented by a top parallel trend channel line (blue) and a $3,153 target, The target is the 261.8% extension of the retracement from the February decline (BC). Although the top blue channel line was initially exceeded earlier in the day’s trading session, the subsequent bearish reaction indicates that resistance has been seen around that price area.

The blue channel line represents a rising channel that is the second and shorter of two channels that are outlined on the enclosed chart. The larger channel is outlined with purple lines and the shorter with blue lines. A rising parallel channel can help spot potential support or resistance as a trend progresses higher.

Weakening Momentum

Yesterday, the upper boundary of the larger channel was exceeded to the upside, establishing today’s support level at that line. In other words, prior resistance has been recognized as support, which can be a bullish sign. That advance also triggered a potential bull breakout of the larger channel. It is a potential breakout as it needs to be sustained and followed by further signs of strength. So far, that is not the case and therefore today’s bearish behavior may lead to a failed channel breakout. If the bearish shooting star triggers, initial potential support areas look to be around $3,077 and $3,058.

Bullish Continuation Targets $3,170

There remains a possibility that the larger channel breakout is retained by support continuing around or above the top purple line. However, the breakout of the channel is a sign of potential overbought conditions, along with the overbought position of the relative strength index (RSI). If that is the case then a more specific test of the $3,153 target could occur, gold extends higher towards the next target of $3,170.

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