Breakdown Shows Seller in Control

The breakdown of the trendline was confirmed by Monday’s closing price below the line. Then, on Tuesday, gold found resistance at the trendline with the day’s high of $3,334. That showed prior support of the trendline as resistance. The low for the day at $3,308 was almost an exact retest of support at the interim swing low of $3,310. Although that low failed briefly on Monday, as a low for the day of $3,302 hit intraday, the quick recovery shows support being retained around the interim swing low.

Above $3,345 Needed for Bulls

A rally above Tuesday’s high of $3,334 will show strength and the potential for a bullish reversal. But a rally above Monday’s high of $3,345 provides clearer confirmation as a three-day high will have been reached and two moving averages reclaimed. It is interesting to note that the 20-Day and 50-Day moving averages are the closest to each other since the last bullish crossover in January. This shows strong potential resistance and the likelihood that volatility is close to expanding rapidly.

Selling Pressure Intensifies

The breakdown of the pennant points to possible continuation to the downside. A drop below Tuesday’s low of $3,308 will indicate weakness that will confirm a decline below $3,302. That would put gold in sight of a test of support around the higher swing low of $3,247 (C). The weekly chart supports a bearish scenario, although it is within the context of a consolidation pennant formation and therefore may be less reliable. Last week completed a bearish shooting star candlestick pattern and it triggered this week below $3,325.

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