Whilst many have been panicked by the violent swings in the price of gold during March, calm analysis of the weekly chart reveals the true picture when considered from a volume price analysis perspective. And to make this easier, I have annotated the candles 1-6 with today’s price action at the start of the week unlabelled.
Candle 1 begins the move with a wide spread down candle on ultra-high volume. This is what we expect to see after such a dramatic move in price. Candle 2 follows reversing on good volume, but when we compare this to other up candles of similar size, our benchmark candles, the associated volume looks weak, and so it proves on Candle 3 with the savage move of almost $200 per ounce, but again look at the volume. Once more, this looks to be an anomaly. After all, given the spread of candle one, this candle is almost twice the range, and therefore we should expect volume to be substantially higher and perhaps double. It is not, and again comparing this to other benchmark down candles this is a clear anomaly. Candle 4 follows but the selling pressure is waning, as denoted with the falling volume over the two weeks. Candle 5 follows. Another anomaly this time to the upside with extreme price action on average volume. Candle 6 follows, and if the others were anomalous this looks even more so on such low volume. This is clearly a trap move as there is no evidence of selling pressure with price simply whipsawing. So no surprise to see gold breaking higher in early trading. But where is gold going next?
As I have suggested in previous gold posts, the key level is around the $1700 region, and even more so, since the last few weeks have seen this level tested and retested. The trend monitor remains steadfastly blue, and given the picture of falling selling pressure and traps lower, we can expect to see go move higher as volatility ebbs away, and once through the $1700 per ounce level should open up a sustained trend higher in the longer term.
By Anna Coulling
Charts from NinjaTrader and indicators from Quantum Trading
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