Gold Building A Top? Potential Downside Price Objectives
Conclusion: In early 2024 gold reached the price objective derived from the breakout of the large triangle that had evolved beginning in early 2022. Upon reaching the area of the objective, a classic buying climax halted the trend. The subsequent trading range has been characterized by distribution. In the event of a breakout lower, the amount of distribution (cause) derived from the point and figure count suggests that a downside objective of 10-12% lower is reasonable.
In this piece we make a technical assessment of the daily and weekly charts, provide evidence suggesting that the range is likely distribution (Wyckoff)
In November 2023 gold broke above lateral resistance that had developed along the 2079-2085 area.
• The lateral resistance and the rising support generated by the trendline (A) defined a large triangle.
Importantly the original breakout from the 2079- 2085 triangle generated a price objective of 2540.
• That objective is derived: 2079 (initial point of the triangle ) - 1618 (bottom of the pattern) = 461 points.
• 461 points added to the triangle top (2079 + 461) = 2540 objective.
In my view, triangle price objectives are AREAS to monitor for resistance rather than discrete points.
In March the market rallied to 2454.
• The combination of overbought in the channels, and the 1.382% Fibonacci objective (a bit short of the 1.618% objective), and the area of the triangle objective, clearly defined an area of the chart where supply was likely to develop.
Despite the backdrop of very bullish news and strongly bullish sentiment, a classic buying climax developed (BC). Over the next three weeks the market pulled back to 2285, then rallied in a secondary test (ST).
Gold Daily:
Without going into a detailed Wyckoff price/volume analysis I will make the case that it is likely that the range is one of distribution. Note the appearance of supply (inside the oval) just prior to the buying climax at 2449, the lower volume and angle of attack on the rally to 2454 (secondary test), and the expansion of volume and close near the low of the price spread (last arrow). Rallies inside the range are being aggressively sold as strong hands distribute to weak hands. Additionally, much of the price action has developed below the midpoint of the range.
Trading ranges represent areas of the chart where large numbers of shares change hands, often moving from strong hands to weak hands. This is why there is a consistent relationship between the length of a trading range and the size of the subsequent move. This is particularly true in very liquid, heavily traded markets.
Assuming the current range DOES NOT EXTEND and I am correct in my assessment of distribution, the point and figure count projects enough cause to suggest downside of 2010 - 2030. If the range extends, the count will lengthen and the price objective grows greater.
With this view, I Should be able to fashion a trade well in excess of 3-1 (minimum) risk reward. I suspect that when a trade does set up, that risk reward will be in excess of 10-1 as a stop versus my entry is likely to be less than 1%.
Generally speaking, there are only two outcomes to the range, either the buying climax is short term and the market will, after a period of re-accumulation, move higher or the buying climax will offer a significant top leading to a significant markdown once supply is completely distributed to weak hands.
And finally, many of the topics and techniques discussed in this post are part of the CMT Associations Chartered Market Technician’s curriculum.
Good Trading:
Stewart Taylor, CMT
Chartered Market Technician
Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.
In this piece we make a technical assessment of the daily and weekly charts, provide evidence suggesting that the range is likely distribution (Wyckoff)
In November 2023 gold broke above lateral resistance that had developed along the 2079-2085 area.
• The lateral resistance and the rising support generated by the trendline (A) defined a large triangle.
Importantly the original breakout from the 2079- 2085 triangle generated a price objective of 2540.
• That objective is derived: 2079 (initial point of the triangle ) - 1618 (bottom of the pattern) = 461 points.
• 461 points added to the triangle top (2079 + 461) = 2540 objective.
In my view, triangle price objectives are AREAS to monitor for resistance rather than discrete points.
In March the market rallied to 2454.
• The combination of overbought in the channels, and the 1.382% Fibonacci objective (a bit short of the 1.618% objective), and the area of the triangle objective, clearly defined an area of the chart where supply was likely to develop.
Despite the backdrop of very bullish news and strongly bullish sentiment, a classic buying climax developed (BC). Over the next three weeks the market pulled back to 2285, then rallied in a secondary test (ST).
Gold Daily:
Without going into a detailed Wyckoff price/volume analysis I will make the case that it is likely that the range is one of distribution. Note the appearance of supply (inside the oval) just prior to the buying climax at 2449, the lower volume and angle of attack on the rally to 2454 (secondary test), and the expansion of volume and close near the low of the price spread (last arrow). Rallies inside the range are being aggressively sold as strong hands distribute to weak hands. Additionally, much of the price action has developed below the midpoint of the range.
Trading ranges represent areas of the chart where large numbers of shares change hands, often moving from strong hands to weak hands. This is why there is a consistent relationship between the length of a trading range and the size of the subsequent move. This is particularly true in very liquid, heavily traded markets.
Assuming the current range DOES NOT EXTEND and I am correct in my assessment of distribution, the point and figure count projects enough cause to suggest downside of 2010 - 2030. If the range extends, the count will lengthen and the price objective grows greater.
With this view, I Should be able to fashion a trade well in excess of 3-1 (minimum) risk reward. I suspect that when a trade does set up, that risk reward will be in excess of 10-1 as a stop versus my entry is likely to be less than 1%.
Generally speaking, there are only two outcomes to the range, either the buying climax is short term and the market will, after a period of re-accumulation, move higher or the buying climax will offer a significant top leading to a significant markdown once supply is completely distributed to weak hands.
And finally, many of the topics and techniques discussed in this post are part of the CMT Associations Chartered Market Technician’s curriculum.
Good Trading:
Stewart Taylor, CMT
Chartered Market Technician
Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.
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