Bears defended the 1248 key level and successfully ran sell stops below 1215 en route to new multi-year lows. Watch 1184s for a retest.
The 1248 Story Line
Two weeks ago I wrote about this fantastic 60-handle rally in Gold futures [COMEX: GCZ14], which occurred off our buy zone of 1184. Despite the rally, a greater part of that article centered around the developing story line that the bears would be looking to defend the 1248 key level. Specifically, “Gold bears are looking to defend 1248 and 1262 for a shot at running stops through 1236 and into 1215.80 and lower.”
Additionally, I cautioned for bulls to “take profits and be completely risk-free from here on out in the rest of the position” for those that bought off the 1184s. This was important because we read the developing story-line correctly, which was that bears were looking to defend 1248s for a shot at running downside sell stops to new lows, essentially using those bulls as fuel for more selling.
Here’s the point, as traders we are trained to read the evolving soap opera of the market. We must always know the key players in the market, and how their actions influence the developing story line of price and value.
In this instance, we had a great idea that bulls would be looking to defend 1184s for a shot at 1244.50s. But we also knew that bears have been in control of the market for years, and would likely be looking to defend the first bounce into prior value, which in this case was 1248s. This foresight allowed to dynamically manage our position, take profits, and be completely risk-free ahead of the would-be sell-off.
By interweaving these types of storylines as the market dynamically progresses, you’re able to anticipate key reversal levels, reveal participants around those levels, and analyze how those factors are influencing price right now, which helps you actively manage your risk and stay steps ahead of other traders.
Continue to watch 1184s
Gold futures reached new multi-year lows not seen since 2010, as prices dipped below 1184 and into the 1160s Monday. Given the violation of 1184, the first retest of this level will be important, as bears will want to keep this level offered for a shot at new lows into 1135.80, and maybe even 1086.
In the short term, bulls are defending the previous month’s low price of 1160.50, and are looking to reclaim prices back above the previous month’s close of 1171.60. This would be the first step in attempting to squeeze the shorts back above 1184s and into the previous range.
In essence, regaining acceptance above 1189 would be a big win for the bulls in the short term, as this would likely begin to squeeze shorts out of their positions into the midpoint of the previous month, which is 1208.10.
Cheers!
Frank Ochoa
Author, Secrets of a Pivot Boss
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