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4-month down trend in gold price XAUUSD over; potential bottom setup

Yesterday’s XAUUSD price action has given me a clear indication to aim for 1330 and subsequently 1392.

In this post, we look at 2 charts and the elements that make me feel that we are looking at a potential bottom here. This changes my fence-sitting earlier this month.

 

Chart #1 – Bullish expansion in daily time frame

XAUUSD chart daily time frame

Bullish expansion (green zone) key feature of this chart

  1. XAUUSD fell for 4 months from August to November; key features of this down trend are lower month-month lows and highs.
  2. Price did a bullish expansion (green zone) i.e. price expanded upwards, built a higher-high; this is the setup for the beginning of a bullish trend.
  3. There is evidence that price is working on a higher support than 1180.
  4. There was a false break at the beginning of the month (red circle) that gave bears false hope BUT
  5. We can say that yesterday’s big rally has removed any doubt in my mind that price action is printing an up trend.

 

Chart #2 – Bear trap and setup for bottom of channel

XAUUSD chart weekly time frame

Overhead resistance levels

Now these are the features I see on the big picture weekly time frame. In my mind, there is a good chance for further rally since:

  • Price managed to stay above 1180 despite falling below the last 2 months.
  • Price below 1180 (brown) could be labeled ‘selling climax’.
  • Based on trend line studies, the first big overhead resistance is an apex at 1330.
  • The second overhead resistance is 2014 high at 1392.
  • It is possible that price could still test 1180 but not likely.
  • Price has broken out of a July-December trend line.

 

Does this change trend of gold price decisively?

No. As a matter of fact, my first chart describes a potential up trend in the daily time frame i.e. month-month price action. However even if price goes to 1392, on a year-year basis, trend is still down although it could be a slight improvement by turning into a sideway consolidation.

Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’.

“Dear reader, I do not have a financial license to give advice. I do not know you the reader. Your financial objective and risk tolerance may be different from mine. I am not responsible for any consequence of your action.

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3 thoughts on “4-month down trend in gold price XAUUSD over; potential bottom setup”

  1. Looi May Siew says:

    Hello Mr Soh, just curious about XAUUSD. Since DXY is going up, shouldn’t Gold be going down instead of rallying? I thought they are inversely proportional to each other??

    1. Soh Tiong Hum says:

      Hi Miss Looi,
       
      It is believed that XAUUSD and DXY are inversely correlated. This was probably true before 2009 but after the end of 2008 we can see that each took on a life of their own when we compare the peaks and troughs.
      XAUUSD-DXY overlayhttps://www.tradingview.com/x/7yPvYmh9/
       
      More recently we can see that Gold appears to be bottoming but there is no sign of DXY topping.
       
      It is my opinion that if you are making trading decisions, not to rely on correlations but to look at the merits of technical analysis or what can be observed from the charts of each instrument individually. After all, any correlation can break down temporarily or permanently from which the word ‘divergence’ arise.
       
      Also sometimes one of them is making an early move and sending a message about the other. As we can see from chart, DXY bottomed before gold’s top. Maybe this time gold is repaying the favour?

  2. Looi May Siew says:

    Thanks Mr Soh for your explanation!

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