Bearish momentum accelerates
Given the accelerating downside momentum seen today, gold appears headed for a retest of support around the 50-day moving average at 2,638, if not below. The next lowest pivot is at the bottom of the bull flag at 2,600. This low is also a higher swing low and is therefore part of the short-term uptrend price structure. If it fails to hold as support and gold falls, a violation of the trend structure will occur and provide another bearish signal.
The 50-day moving average is aiming for 2,638 yen.
Nevertheless, there is a good chance that the higher 50-day moving average will find support. Natural gas traded below this line for about 17 days before the 50-day line recovered in early July. After a subsequent rally, a rebound successfully tested support near the 50-day line, with some small swing lows. After the test of the 50-day line on August 5th, the bullish trend accelerated and the faster 20-day moving average began to identify uptrend support.
Trend channel breakout failure
Also consider an ascending parallel trend channel with an underline starting from the mid-February swing low. Parallel lines of the trend line were then connected where multiple highs and lows hit the line, as indicated by the red and green arrows on the chart. The market then recognized resistance near the upper channel line near the September high, and then again at the recent record high of 2,790 yen.
The rise to new highs indicated a possible bullish breakout of the channel. Of course, given today's bearish price action, a failed breakout occurred instead. Now that the bullish breakout has failed and the key 20-day moving average trend support has broken down, there is always a chance that gold will fall to the lower uptrend line of the channel. If reached, it will determine whether the 2,600 swing low will be tested.
Weekly bearish pattern activated today
As I reiterated yesterday, last week's weekly candlestick pattern (not shown) was bearish. Gold ended with a Doji shooting star formation triggered below last week's low of 2,725. This breakdown was triggered today and the subsequent bearish performance is to be expected from a weekly pattern like this.
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