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Short Term Opportunity in Gold

07/30/02 09:32:53 AM
by Gary Grosschadl

The $XAU gold index collapsed with a triple failure and this has set up a possible trading opportunity.

Security:   $XAU
Position:   N/A

The chart below shows the quick and severe action that occured when three important areas were breached simultaneously. The various flag formations and 200-day EMA (exponential moving average) support both failed dramatically. Upon closer examination there is also a slanted head and shoulders failure. When this crucial level failed, traders just had too many reasons to sell.

Now as traders see the $XAU is at oversold levels and are somewhat reassured that the $300 price of gold will hold, a trading opportunity seems to be at hand. However pattern readers can readily see the danger and opportunity that lies ahead.

Graphic provided by:
Traders that spot the slanted head and shoulders formation can assume a likely strategy. Often a topping formation can exhibit a pullback test, especially the head and shoulders. This pullback can bring the index back to its trendline and this can be a crucial point. Failure or success is the thing to watch as either one can be significant. On the upside, should the $XAU push its way past the neckline and 200-day EMA, then this would be a very bullish signal pointing to additional upside. However should the normal pattern of pullback failure occur, then the downside implications can produce a sizable move that traders can capitalize on as well --shorting gold or at least bailing out of profitable previous positions.

An important caveat is that the price of gold must hold above $300.

Gary Grosschadl

Independent Canadian equities trader and technical analyst based in Peterborough
Ontario, Canada.

E-mail address:

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Date: 07/30/02Rank: 5Comment: 
Date: 07/31/02Rank: 4Comment: 
Date: 08/06/02Rank: 5Comment: 
Date: 08/06/02Rank: 4Comment: 
Date: 08/06/02Rank: Comment: I use a different method, sans charts, but my assessment is the same with the note that I think it will happen.

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