Continuing our recent series of posts on how to spread bet gold today we look at what happened in the market on Monday 28th June. Since our last post on spread betting gold last Tuesday quite a bit has happened to the gold market but most importantly, gold has not taken out the new all time highs that were posted on the 21st June at $1266.50.
Therefore we still have not had the 2 closes above resistance at all time highs that we have been looking for over the past 2 weeks. This is an argument for the bearish side. In yesterday’s trading, a huge sell order hit the market, sending the price of gold tumbling by $20 in just over an hour and this was from just below resistance at all time highs.
Another factor for the bears is the possibility that on the weekly charts that a morning star pattern is forming. A morning star is a 3 bar pattern over any time frame, so this could be either daily or weekly. To me patterns or bar periods of less than a day are completely irrelevant and not even worth looking at. For confirmation of this pattern, we do need the close of the third bar, which in this case would be the all important Friday close this week. This Friday’s close perhaps carries even more significance, as it is the Friday before the long holiday weekend in the US for Independence Day on the 4th July.
So, getting back to the morning star pattern, this is a reversal pattern from Japanese Candlestick charting techniques and if the pattern completes it would suggest a top, at least for now in this market. However, and this is the key thing, one should never anticipate a pattern forming and jumping the gun prematurely. Clearly on Monday, there are still 4 trading days to go before Friday’s close so much can still happen. What we can say is that the first 2 bars of this pattern are in place (the previous 2 week’s bars) and that as of now, Tuesday morning the third bar is forming in the right direction.
Last week we also had a bearish engulfing pattern form on the daily charts and as the name suggests, this is a bearish pattern and a reversal signal. This pattern adds to resistance and is only negated when we have a close above the top of the pattern, which incidentally is also at all time highs at $1266.5. A close above this level would be bullish, both from the fact that it would be a new all time high close and that it would cancel the bearish engulfing pattern.
At LS Trader we do not use reversal patterns to initiate trades as they are reversal patterns and necessarily counter trend. The correct way to use candlestick patterns is by seeing the pattern fail and using that as a momentum indicator. Since LS Trader is a trend following system, we are momentum traders. Therefore we look for markets to continue the current momentum or trend. In the case of gold, this is still up and we would not consider any short trades at this time.
Another thing to look at on the gold chart is the ascending triangle that we have written about previously. This is still holding, both at the top where resistance is in place at $1266.5, and also at the bottom of the triangle from the upward sloping trendline. This is currently bringing support to the market at around $1231, which was just below yesterday’s lows at $1235.9.
As we have written previously, if support holds from this upward sloping trendline we may yet see a move back up towards the top of the pattern and new all time highs. Conversely, a break through this support line will likely see the market push lower towards support around the $1215 area. Around this level we still have a bullish engulfing pattern confirming support and that pattern should continue to provide support until the market closes below that level, at which point the pattern and support would be negated.
As ever, the most important thing to look at is the current trend. In the case of gold, both the long term and short term trends are up and this puts the odds slightly in favour of higher prices, although the longer that it takes to clear resistance those odds reduce and increase the odds of a top forming.
At LS Trader we remain long gold, as we have been since the 26th April where we entered at $1153. This is consistent with our key successful financial spread betting principles of trading with the trend and letting winning trades run. We will continue to stay long as long as key support holds in the knowledge that even if the trend reverses that we will exit with some profits intact. This is the correct way to spread bet gold.
Good luck in your financial spread betting