As I talked about in Thursday's blog ("When a Downtrend May Not Be a Downtrend"), technical turn signals are not often clear cut. They can be murky at times, allowing for creative interpretation by analysts. Other times though, the picture of a key market turn is as clear as a cold winter morning. Such is the case in February gold this week.
Take a look at the attached weekly chart and the outlook for gold is easily spotted. This week's action saw the Feb contract post a new low of $1,181.40 before rallying to a new high of $1,238.30 (so far). All that is left to establish a clear-cut key bullish reversal is a close above last week's settlement of $1,214.00. As of this writing (Feb gold is at $1,233.90), the likelihood of this happening looks strong.
This key bullish reversal, signaling a move to a secondary (intermediate-term) uptrend confirms a change in momentum seen last week when the contract posted a narrow range from $1,218.90 to $1,191.80. Notice that weekly stochastics (bottom study) established a bullish crossover with the faster moving blue line crossing above the slower moving red line, with both below the oversold level of 20%. For the record, the readings of weekly stochastics at last Friday's settlement were 13.3% (fast line) and 12.7% (slow line).
The combination of a bullish crossover by stochastics and a key bullish reversal by the more active February contract sets the stage for a potential solid rally in the gold market. The initial target is $1,422.00, a price that marks the 38.2% retracement level of the previous downtrend from $1,811.30 through this week's low. Also notice that this resistance level held the interim rally off the late June 2013 low of $1,187.90.
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