As discussed in our last analysis on gold from January 4, a bearish AB=CD pattern was forming with a 100% D leg completion at 1,273.9. That price target
was reached last Friday as gold hit a high of 1,282.11 for the week. Although not assured, a pullback is now possible. In addition to the ABCD completion,
potential resistance can also be seen in this general price area from previous price structure (support and resistance).
In addition to the AB=CD pattern, a bullish breakout of an Inverse Head & Shoulders pattern began a couple of weeks ago. Therefore, a decline down to the
neckline might be considered the lowest price level before support would be found, if a retracement occurs from current levels. Higher price levels are the
previous peaks marking the neckline, first at 1,255.30 and then 1,238.30.
The odds of a higher rally following a pullback are good. A couple of the supporting factors are as follows:
•Inverse Head & Shoulders minimum target not yet reached
•Weekly close occurred above the internal downtrend line. The next and longer downtrend line, across the top of a large descending triangle, is higher.
•Weekly close above the 55-week exponential moving average (ema). Last week was the first time there’s been a weekly close above the
55-week ema since early-July 2014, and only the third time since gold’s decline accelerated in April 2013. However, note that each of the two prior
moves above the 55-week lasted no more than two weeks (not bullish).
•Back above the 200-day ema for first time since August 2014