The Golden Triangle. First the pain, then the gain.

Today gold declined below an important short-term support at 947 (magenta line) and came to rest at the bottom trendline of a symmetrical triangle. Symmetrical triangles are continuation formations, but not without their foibles. That is why I inserted, "First the pain, then the gain." in the title. Having finished wave d, gold is now working out wave e, the rogue wave of the formation. This is the fake out wave that may shake out the weaker longs just before exploding to new highs.

Think of the triangle formation as a coiled spring. The pattern is getting wound tighter and tighter. Finally it snaps. Unfortunately, it can snap in the wrong direction for a short while. That happens more often than most people think. So let's talk about support areas. The next (intermediate-term) support is at 930. Should gold decline below intermediate-term support, it opens a potential trap door all the way to trend support at 875. These are supports that are available through my proprietary model, which tracks the gold cycles. We may be emerging out of the negative season for gold. However, the trend cycle bottom which is usually due this time of year hasn't been tested yet, so the odds are better than even that 875 may be tested before gold gets its launch into the next level of its bull market.

Using Elliott Wave analysis, the pattern appears to be an A-B-C formation, where the standard target is that C is equal to A. However, in a triangle, the measure for the target is often taken starting at the apex of the triangle, approximately 960. Wave A is 326 points, so the target for wave C may be 1286. By the way, this agrees with the target for the broadening descending wedge, which also has a target near 1300, but its odds of failure are 37% (source: Thomas BUlkowski's Encyclopedia of Chart Patterns), pp 87-99.) Add the statistics of a symmetrical triangle with only a 5% failure rate (source: Bulkowski, pp560-575) and the odds are nicely stacked, IMO. The targets mentioned may be minimal targets, since a wave C may be a Fibonacci multiple of wave A.

Good luck and good trading!

Tony Cherniawski