As another trading month comes to an end, gold traders will be watching wondering and waiting as the precious metal is once again poised delicately at a tipping point on the daily chart. June could best be described as a game of two halves to use a footballing analogy, with the massive wide spread up candle defining the two regions. The early part of the month was characterized with a slow recovery, followed by the surge at half time, and then moving into the second half of the month with a phase of price congestion, and there are now several key issues to consider from a technical perspective.
The first of these is the ultra high volume of the 1oth of June, the highest volume of the month in fact, which saw the price of gold close modestly higher on the day, gaining just over $8 per ounce. At the time I suggested that this was an early sign of weakness. After all, on such high volume we should expect to see an equally large rise in the price, so clearly an anomaly and an early warning signal of weakness ahead. Compare this volume bar with that associated with the price action of the 19th June. Here we saw the price of gold gain over $36 per ounce, on average volume, once again sending a clear signal of weakness and yet another anomaly in the volume price relationship. After all, on such a wide spread candle, the volume should be ultra high, when in fact it is merely average. In addition the price action has also triggered the volatility indicator, once again raising a warning flag of unusual activity in the market, and in this case even more so, as it is coupled with low volume. Clearly the big operators are not joining the move at this point, and this can therefore be considered a trap set for the gold bulls.
This view is further confirmed by the price action and volumes over the last few days. Here we can see a series of hanging men candles, coupled with volume which is higher than that of the 19th June, and approaching the volume of the 10th June, all of which is now suggesting weakness at this level, and a trap up move set by the big operators. The wide spread up candle is a classic example. It is designed to suck traders into weak positions, jumping onto a fast moving train, which then stops and reverses just as fast. The key here is the price action. With a wide spread up candle such as this, what generally happens is that the subsequent price then moves back to trade within the spread of the candle, trapping traders in weak positions, which is precisely what has happened over the last few days, and with the prospect of a move lower in due course. The candle of the 19th June will only be validated if we see a clear break and hold above it in due course.
Moving to consider the support and resistance, here too, gold is at a key point. The resistance level at $1315 per ounce has been breached over the last few days, but with no great conviction, and in early trading on Globex this morning, gold has been testing this region once again and moving lower to trade at $1314.60 at time of writing. Above, lies the next deep level of resistance in the $1330 per ounce level, which has been tested on 19 occasions on this timescale, so any move to breach this level will need to be associated with consistent and rising volume.
In summary, June appears to be a trap up move set for the unwary, and moving to the weekly gold chart, this merely reinforces this view. Not only has the rise in gold been accompanied by falling volume, a sure sign of weakness, but last week’s price action is associated with ultra high volume. Again, an anomaly. On such volume, the price of gold should have surged higher, and on towards the $1350 per ounce region and beyond. It has not. Instead it has traded in a very narrow range and from this there is only one conclusion. The associated volume is selling and signalling weakness ahead, so prepare for an interesting July!
By Anna Coulling
Thnks for the article.
Just a quick question regarding your volume indicator. On both my Meta Trader account and on stockcharts.com-symbol “$GOLD”, the volume on those specific days is different, with volume on the 19th being the highest in June. The weekly bars show higher volume on the week with the big move up. That obviously would change the narrative and might verify bullish bias.
Hi Maj – many thanks for your comment and I’ll do my best to answer your question. The volume I use is from the Kinetick data feed of NinjaTrader and based on the associated futures volumes, and as I’m sure you can appreciate, volumes can vary for many reasons. This is always an issue when trying to compare one vendors data feed with another, or cross platform feeds. The key point is to always compare the same volume when using a VPA approach so we are comparing apples with apples. On the MT4 platform for example the volumes profiles for the same instrument will vary depending on how the data is bundled along with the source from where it is derived. This does not invalidate VPA but simply means we have to compare the same volume for analysis purposes. When I first began trading I spent many months comparing data feeds to try to arrive at a volume profile which was identical on all platforms, and soon realised that this was impossible given all the variables of platform, data source, clock speeds, location, handling of tick data etc. With regard to the analysis, you may well be correct and gold continues to move higher in the short term, as indeed it has done today, but the volume price profile is telling a different story, and in the medium term the signals suggest a significant reversal in due course. It is all to do with timeframes – for gold bulls today has been a good day, but for longer term gold investors, the warning signals are in place. Hope this helps to answer the question – all best wishes – Anna