Regular readers will know in my last post on gold I suggested that it was looking fragile and if it should break to the downside then $1700 per ounce looked as though it might be threatened which has indeed been the case in the collapse of the precious metal which saw it hit an intraday low of $1677.90 per ounce on Monday before recovering to close at $1726.50. This calamitous price action followed the widespread down candle of Friday last, which saw the metal breakaway on excellent volume from the VPOC denoted with the yellow dashed line at $1805 per ounce. As we might expect after such a dramatic move, the volatility indicator on the NinjaTrader daily chart was triggered and as a result, we can now expect to see one of two things occur, either congestion within the range of this candle or a reversal higher.
Of more significance is the volume associated with this move when compared to volume over the last few months, and what strikes us instantly is the fact that whilst this volume is high, it is not excessive. In fact, it is lower than the previous day which is an anomaly. On such a violent move we should expect to see extreme volume which clearly we do not have here confirming that one of the big operators is not participating and the signal for the sell-off is a trapping move. Moving forward we can expect to see a period of consolidation within the range of the candle before gold recovers, and more likely moves back to retest the VPOC at $1805 per ounce in due course.
Note however we do have strong price based resistance at $1750 per ounce and denoted with the red dashed line of the accumulation and distribution indicator and in addition, at this price level, volume on the VPOC histogram begins to build which also acts as resistance, so as any recovery develops it will need to be associated with good volume, but remember we are in the doldrums of summer, so this may be lighter than we would otherwise expect.
By Anna Coulling
Charts from NinjaTrader and indicators from Quantum Trading
Was that big move down a test to see if there was demand still?
Yes – a huge shakeout in preparation for the reversal on volatility trigger – regards Anna