Bears And Bulls Battle Between Key Levels In Gold

By Kira McCaffrey Brecht Kitco.com

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Trade what you see, not what you believe. The beauty of chart reading is that it offers traders the opportunity to be objective. Taking a look at recent technical action, since peaking out in late August at $1,434 per ounce, Comex December gold futures have lost some luster.

Dec gold futures have tumbled under a rising bull trendline, drawn off the June 28 and August 7 daily lows. Last week, the market rebounded to test that breakout point, but again backed off. For now, this reveals that the bulls have lost the upper hand. There is two-way trade unfolding and the bulls and the bears are fighting for control.

Technically, a pattern of higher daily highs and higher daily lows is still evident since late summer. But, support at the August 7 daily swing low at $1,271.80 is a significant area to monitor near term. That zone must hold, otherwise the yellow metal will be vulnerable to more substantial selling pressures near term.

Additionally, Dec gold has slid under both its 20-day and 40-day moving averages, which is a red flag for the bulls. Those levels now offer nearby resistance at $1,365.80 and $1,349.80, respectively.

Very short-term, the first line of defense is seen at last week,s low at $1,291.50. This is part of a larger critical support zone that includes a 61.8% Fibonacci retracement of June-August rally and the August 7 swing low. The support zone runs from $1,291.5-1,271.80. That is a key line in the sand for the market near term.

For now, that area could offer a floor for the market as gold pauses to digest the recent Federal Reserve news and to monitor upcoming Washington D.C. budget battles. Fundamentally, the political strife over a potential government shut-down and debt ceiling battle should attract some buying interest on dips. But, wise traders let the market tell them where it wants to go.

The market has downshifted into a temporary neutral zone between resistance at the September 19 swing high at $1,375.40 and then the support zone outlined above from the $1,291.5-1,271.80 area. The bulls need to conquer resistance to regain firm control of the near term trend. On the flip side, a solid close under the bottom of the support zone would be a bearish chart development.

For now, there is likely to be some choppy, noisy back and forth trade in between those zones as the bears and the bulls do battle.

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