GOLD- Bearish Engulfing on weekly chart!

I am sure you are surprised by the heading of this article. At a time when most experts and no-so-experts are suggesting investing in Gold for long term (!), it seems that the above title may sound out of place.

But then, only a couple of years back, at the height of the stock market boom, experts predicted Sensex to be 25000 and beyond; and the markets came crashing to sub-10000 levels!

It seems that something similar is happening around GOLD. In fact when once-in-a-while investors start contemplating investing it may actually be a time to sell. History has proved this time and again.

The current price structure of GOLD may be indicating initial signals of a reversal in coming months. On the Weekly charts there is what technical analysts call a bearish engulfing candle pattern. The pattern has (obviously) bearish implications, especially since it is on a higher time frame. Moreover on the weekly charts, even on indicators, these implications are getting stronger.

The following (attached) is the weekly chart of GOLD in $ terms.

You would have noted that GOLD surpassed its previous high of $1226 reached in Nov 2009 and recently touched a high of $1249. (However on MCX , it has not surpassed the previous high of Rs 18500 levels due to currency adjustments).

Normally a break of a previous high suggests new buying and the rally should have continued for few more weeks. But this has NOT happened.

In fact just after the week that the previous high was broken, there is strong profit booking seen in the subsequent week. This may be suggestive of lack of conviction by the market players.

We as investors and traders may keep in mind the price level of $1145 and a weekly close below this should lead us to conclude that the bullish phase is actually over.

Incidentally, as indicated in my earlier article , GOLD has been in a bull run for the past 10 years. Thus getting extremely bullish now is not prudent.

This often reminds me of what I tell my participants in my practical trading workshops- When everyone is convinced of a Bull market, it is time for booking profits

So, investors and traders, keep a strict vigil on the indicated price level and protect your gold profits.
MAY 2010

CA Rajiv D Khatlawala
Author "How to Profit from Technical Analysis"
Publ Vision Books New Delhi.


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