Finding Support in Consolidation


The retrace in the price of Gold was predictable. We have mentioned several times that whenever Price outpaces the 50 day Moving Average it demonstrates great strength but only over the short run, as price and average should always be converging one on the other. Look on the chart below at the red arrow which depicts the last time there was a run up in price and notice the retrace that followed. We are in the midst of a similar pattern. Exactly how far Gold retraces will depend on where it finds support. If Gold finds support at the 50 day MA, currently 1,160, then we should see price begin to consolidate. If Price takes out the 50 day MA then the next level we target is 1,135, approximately where the 50 and 100 MA crossed each other spurring the Gold rush rally. A close below that level would be rather significant.


The move in Oil has been severe but we are starting to see the first signs of necessary consolidation emerge right at the $70 handle. If we look back through mid 2009 we see Oil consolidate and move sideways for several months around this level. The 50 MA is above the 100 MA and the 100 MA above the 200 MA, usually a prescription for rising prices. Never the less, you can see the severity of the newly formed slope suggesting the averages will likely begin to cross during this period of consolidation. If price breaks through red line support it would potentially signal another sharp drop in Oil prices.


This pair has been trading with multiple personalities for some time. The NZD hit resistance at .7600 back in October and then proceeded to trade within wide downwards sloping trend lines through mid February. At that point it began trading in almost a pennant or flag pattern, which consists of an extended breakage of trend before once again resuming the original trend (downwards in our case). This is the area within the black dotted lines. The key area is where the flag pattern support line met overall trend line resistance. To make matters more explosive all the major MA’s were also converging on that handle, and then the bottom fell out of the NZD and prevailing trend lines held. The key to future price action will be determined when price tests trend line Support near .65

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