Originally published by Guppytraders.com
The gold price is exhibiting an untidy uptrend with the potential to breakout above the critical long term resistance level near $1364 and move towards $1550. It’s the untidy nature of the uptrend, and the lack of confirmation from related commodities that calls for more caution in trading gold.
The uptrend that started around 2016 December has not been a steady or well defined trend. On the weekly chart the Guppy Multiple Moving Average (GMMA) indicator relationships show a weak uptrend. Its weak because the gold price oscillates dramatically around the long term GMMA. This is whipsaw activity taking place against the background of a slowly rising trend.
The long term GMMA provides an insight into the way investors are thinking. When the long term GMMA is compressed it suggests weak investor support. Strong investor support for a trend is shown by wide and steady separation in the long term GMMA. This characteristics has only developed in the past 3 months. The separation is not very wide and this suggests there is not strong investor support for the rising trend.
The second feature that contributes to the weakness of the trend behaviour is the placement of the uptrend line. This starts from the low of 2016 December. However the second anchor point for the uptrend line does not appear until 2017 January. This means the position of the trend line is not well tested and this in turn means the uptrend is not well defined. The current value of the uptrend line is near $1305 and this is also near to the value of the lower edge of the long term trend line.
This is bullish because it shows two support features which may support the continuation of the uptrend. It is a dangerous feature because a drop below these two support features signals a change to a downtrend. It is critical that the price remain above the trend line for the uptrend to continue.
The third feature that adds to the uncertainty in this gold uptrend is the behaviour of the silver price. Usually silver and gold move in tandem, both generally rising and falling together. The rise in the gold price has not been matched by a rise in the silver price. Silver remains stuck in a long term sideways trading band. This lack of confirmation from an uptrend in silver to match the uptrend in gold signals caution in trading the gold trend.
Traders and investors watch closely for a breakout above $1364 and a strengthening of the GMMA trend features. However they remain alert for a drop below the trend line.
Until the long term uptrend is well defined, traders continue to trade short term rally and retreat behaviour. We use the ANTSSYS trading method for this.
Daryl Guppy is a leading international financial technical analysis expert and special consultant to Axicorp. Guppy appears regularly on CNBC Asia and is known as "The Chart Man". Disclaimer: Daryl Guppy is not a financial advisor. These notes are for educational purposes only and provide an example of applied technical analysis.