Gold further rolls out a potential bear flag pattern with another test of trendline support at the day’s low of 2,315. The bearish setup follows a sharp one-day decline on June 7 that reached a low of 2,287. That drop began a second wave down for the correction. A fifth wave down is possible if the low price on June 7 is broken to the downside. An initial breakdown signal will occur a little below today’s low, which is almost touching the line. However, there is also a weekly price level to watch.
Last Week’s Bearish Candle is a Risk
Last week ended with a bearish weekly candlestick pattern in gold. Therefore, a weekly bearish signal is triggered on a drop below last week’s low of 2,307. Since it would be a weekly signal, the possibility of a subsequent drop below 2,287 greatly increases if that happens. Nevertheless, the most recent swing low is at 2,277 from May 3. That swing low is part of the price structure for the rising trend. If it fails to hold as support on a deeper pullback, a drop below it triggers the breakdown from a topping formation.
First Lower Target is 2,252
The first target below the May 3 swing low starts around 2,252. That price would complete a falling ABCD pattern and is shown on the chart as the end of wave 5 of the decline. Regardless, there is a potentially more significant price zone a little lower starting from around 2,211. Notice that an internal uptrend line converges with the price zone as well. That line is parallel to the top internal trend channel line. It acted as resistance during each of the two failed attempts to break out and continue to rally into higher prices.
Bull Breakout on Break Above 2,369
Alternatively, an upside breakout is not indicated until there is a rise above last week’s high of 2,369. Until then, if gold does not break down, it may further chop around within the developing rising flag consolidation pattern. Once that happens the prior swing high around 2,388 is next on the agenda followed by an attempt to continue into new record highs for gold.
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This article was originally posted on FX Empire
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