Monday, 29 July 2013

Pennant update: resistance lines shown and possible breakout coming hopefully? - 2013-07-28

I updated my chart drawn on Saturday to show the resistance lines that accompanied the bullish pennants during the current gold rally. Both pennants had quite important coincident resistance lines to overcome:

As I mentioned previously, the firsrt pennant back in early July (the red one) failed before repairing and forming a bigger right shoulder for an inverse head and shoulders with the necking along the red resistance line. Resistance was then beroktn to the upside and there was a stong upmove to the target of the head and shoulders which went to $1339.

Now gold ins in a similar pattern. A pennant forming at resistance lineshown in blue that also encompasses two important recent highs (to upper left of the chart).

This time however, the resistance is already pushed bak by the new blue pennant - the highs have broken through the resistance a bit. If one were to be more liberal in interpreting the resistance line, it might be drawn a little lower and the pennant wold already be breaking throught more. Anyway, it is a nice construction.

As I write, there is a third move (that started last Friday late in the session - see chart above) that is now bresking the resistance line and has reached $1330. It looks like a potential breakout from the pattern.

Remember that the resistance line has capped both previous rallies since the April crash so a failure there would be very bearish, indicating a possible move to new lows or at least to an intermediate low not far above $1200.

A convincing breakout of the pennant would put targets of $1414 (from the pennant) and $1421 (from the current inverse H&S) in the frame as mentioned in the last post. Both these targets are also above the top of the downtrend channel that comes from the start of the April crash and could constitute a breakout from this damaging downtrend. See charts below:

Right now, the price has moved above the upper line of the pennat and has come to test the upper line as support. More strictly it is testing the resistance line from the previous rally highs as supprt because it penetrated the pennant line slightly:


Looking back at the last post, I was a little too liberal with my targets. I should have taken the top of the pannant at $1348 and not $1356, so the pennant target is more like near to $1408, not $1414.
What I would not like to see is the price sliding down the upper line of the pennant because, when that occurs, I have seen pennants fail, possibly because the bullish impulse to breakout is fading and then gets overwhelmed. A decisive breakout is needed, soon.

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