Gold: Top-down Technical Analysis
Top-down technical analysis might be the direction for market investors/traders during turbulent periods like the present Credit Suisse-bailout era. Concentrating on numerous timeframes helps prevent making conclusions based solely on the extremely short-term periods under consideration.
This method is more time-consuming and is often overlooked by traders, but the rewards exceed the drawbacks. In this research, we examine gold, which, like other financial products, is still feeling the aftershocks of the banking sector crisis, beginning with the longer term and progressively progressing to the shorter term.
Weekly timeframe:
We start with the weekly chart and the idea is to determine the long-term trend and important support/resistance levels. From its low of 1,614 in September 2022, gold has risen dramatically and is now trading over the 2,000 mark. Since August 2020, gold has breached this critical psychologically significant region three times.
This is not unexpected considering the severe events both economically and financially that the globe has been going through since the Covid epidemic and more recently the skyrocketing inflation era.
The present price level is above the several simple moving averages (SMAs) used here as well as a crucial upward-sloping trendline. Meanwhile, the Average Directional Movement Index (ADX) is trading over the 25 levels, indicating that the market is trending. As the technical picture remains optimistic, the stochastic oscillator is attempting to contradict it.
The higher high in gold has been matched with a lower high by the stochastic oscillator. The bears might use this bearish divergence to push the gold market lower, with a September 4, 2011, high of 1,921 as their first target.
Daily Timeframe:
The daily chart is popular among traders and attracts the largest interest. The following is a list of the most recent articles I've written about the subject.
The tremendous increase that has occurred since March 8 has brought the index above 2,010, the highest level since March 9, 2022. Gold has fallen in the previous three sessions, even though the market mood looks to have recovered slightly from last week.
The ADX shows this, with the bullish trend appearing at the peak. Similarly, the stochastic oscillator is attempting to break through its overbought zone. With the September 6, 2011 high of 1,921 close, such a move might elicit a negative reaction. When looking at gold's performance in March-April 2022 and January 2023, this area looks to be troubling the bears. Given the robust gain last week, such a correction might even benefit the bulls, assuming the next local dip is above the 1,800 level.
4-Hour Timeframe:
Long-term investors would be satisfied with weekly and daily research, whilst extremely short-term traders would glance briefly at the 4-hour chart before moving on to the 1-hour and 15-minute timeframes. For our purposes, four hours seemed to be sufficient to comprehend the short-term dynamics and identify significant levels for future market entry and exit. Since the March 8 lows, gold has risen dramatically, breaking over the psychological barrier of 2,000.
The market has corrected in each of the three daily sessions as it attempts to reach a new equilibrium around the 1,840 level. The overall technical picture suggests that the market is becoming more balanced, maybe in preparation for the next move. The ADX is slightly above its "trendless" zone, while the RSI is hanging around the 50-point mark. Also, the stochastic oscillator looks to be flattening just above its oversold region.
Nonetheless, the bulls may be able to draw courage from the growing bullish divergence (pink line at the 4-hour chart). The higher low in gold's price action has been greeted by a lower low in the stochastic. The next level of resistance is around 1,960, which is the 23.6% Fibonacci retracement of the February 28-March 23 upswing and the February 2 high. The bears, on the other hand, would have to contend with the March 9 upward-sloping trendline and, finally, the 38.2% Fibonacci retracement and the 50-day SMA at the 1,923-1,931 level.
Bringing it All Together:
The practice of studying for several periods takes time, but it is still a superior approach to analyzing the market. The periods studied may be tailored to each trader's profile, but we feel that the above top-down technique should be part of every trader's arsenal. Regarding the gold examined here:
- The bullish trend is still visible on the weekly chart. To change the market's fate, bears must breach below 1,850.
- With the present momentum indications and the bears' ability to breach the 1,920 regions, the correction seems to have legs.
- Although the overall picture suggests a balanced market, a bullish divergence and a fading positive trend might rekindle the bulls' hunger.