Massive XAUUSD Downtrend Offers Multiple Shorting Opportunities

Gold has been tumbling lower and lower ever since it peaked at $1921 on September 2011.

Last week price dropped to a low of around $1130 after breaking the bottom of a contracting wedge.

What does that mean for the future of Gold? Can XAUUSD fall further or is a turnaround imminent?

13- 11- 2014 IMAGE 1

PINBAR BREAK

The break of the bearish descending wedge (red trend lines) was probable at one point or another – and that moment happened to be this month. But the break is encountering hefty support.

A weekly pinbar closed last week, which indicates that the bears were far from in control. Is this a pullback for more downside or perhaps a reversal?

My analysis is simple:

  1. Breaks are often volatile – especially a break of a massive weekly wedge so the weekly pinbar could be a mere reflection of the breakout uncertainty;
  2. The trend is clearly down: any price action that remains below the broken wedge bottom and below the last lower high (dark red circle) is still heavily in bearish territory;
  3. When looking at support levels on the weekly chart (potential turnarounds areas), I really do not see any major level until 1043 where a group of bottoms and broken tops are present (magenta lines).

13- 11- 2014 image 2

BEARISH TRADES: FROM WHERE

From the above analysis it is obvious that I am searching for shorts opportunities on this commodity. There are 2 main scenarios that seem likely at this spot. I will show both of them. First some general observations:

Price made a bullish retracement (blue arrow), stopped at the 38.2 Fibonacci (red circle) and is now making a triangle (purple lines), which stopped at the 61.8 Fibonacci (blue circle) level.

Scenario 1: bearish break.

A bearish break of the triangle (red arrows) could indicate the completion of the correction and the start of the downtrend. In this case price (almost) hooked back to the broken bottom (lower magenta line) and used that as a resistance. An entry would occur upon the break of the support trend line but I will be cautious of the support, bottom and Fib levels below it, which could act as a bouncing spot. The break of the bottom would indicate the space to fall – perhaps to the bigger weekly level at 1040. A stop loss should be above the triangle top – at the very minimum.

13- 11- 2014 image 3

Scenario 2: higher retracement.

The alternative is that price continues with the bullish momentum and makes a bullish break of the triangle. In that case the most likely target and turning spot for the downtrend to continue is at the 61.8 and -61.8 Fib confluence at +/-$1205-08. This shorting level would still be clearly below the daily top (higher magenta line) and a great moment to fade the counter trend momentum. Therefore, the most interesting trade setup is the short at the target and not the long upon any bullish break of the triangle because the bigger trend is down.

The stop loss could be above the bigger daily top (dark red) or even above any bearish candle stick pattern at the targets (more riskier). The target could be the bigger weekly support (long setup and more unsure, but better reward potential) or anywhere between $1130-50 (more conservative).

13- 11- 2014 image 4

What is YOUR analysis saying on Gold?

Thanks and Happy Hunting!

The following two tabs change content below.
Winners Edge Trading was founded in 2009 and is working to create the most current and useful Forex information and training available on the internet.

Winner’s Edge Trading, as seen on:

Winner's Edge Trading in the news

  • Chris

    Hi Nicholas, thanks for the feedback! The downside break was indeed a nice one 🙂 Good Trading!

  • Nicholas Stein

    The top chart looks like a bearish butterfly to me. I would be trading Scenario #1.