Last week was all about USD strength, and it is no surprise that Gold prices started to pull lower on stronger USD. For the technical inclined, the decline in Gold prices lined up nicely the bearish rejection pattern that we were looking out for following the spinning top candlestick that was formed 2 weeks ago.
Why were we looking out for a bearish rejection pattern?
Well, gold prices did pullback significantly with price recovering more than 100 USD an ounce following one of the greatest sell-off in recent years. However price was approaching the previous descending Channel with Channel Bottom most likely going to provide significant resistance especially since trend was already heading lower even before the significant sell-off. The Spinning Top candlestick that was formed 2 weeks ago was a warning sign that there is weakness in the bulls or at least uncertainty just under the descending Channel. Despite seeing signs of weakness, there is no surety that price will not push inside the Channel especially if any strong fundamental catalyst was made available last week. As such, we were waiting for a confirmation before we can be more certain (there is no 100% absolutes in trading) that a rebound from Channel bottom is underway.
With last week’s candle bearish closing, we have now the confirmation that was sought before. It is also good that the body of the confirmation candle is larger than the spinning top prior to it. Admittedly that is not a difficult task as a spinning top candle is characterized by having a small body to begin with. Nonetheless, to have the confirmation candle engulfing the signal candle is always welcomed. However the confirmation candle is less bearish than it probably could, with a long tail suggesting that significant bullish pullback occurred, while price did not close lower than the low of prior week, indicating a missed opportunity for bears to deliver the fatal blow for a strong bearish reversal.
The damage done seems to be enough though, as price started Monday bearishly, yet it is still important to note that bears are still not out of the woods, with price still yet able to test the previous week’s low. Given the missed bearish opportunities last week, conservative traders may wish to seek further confirmation of bearish intent to ensure that this bearish rejection have legs to run.
Short term chart seems to agree with a bearish outlook, with price trading steadily lower. Just a few hours ago we saw the rejection of 1,438 interim resistance, which opens up a move back towards 1,428 interim support and potentially move towards the descending trendline. Stochastic readings agree with a bearish outlook with readings forming an interim top, suggesting the continuation of the bear cycle since Monday open is possible.
Traders should also continue to watch out for USD strength this week as there remains the possibility of a significant pullback due to weakness in US stocks Futures. This is unlikely to change the longer-term direction of Gold but may certainly stall any furtherance of bearish efforts in the short-term, which increases the importance of further confirmation mentioned earlier all the more imperative.
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