The price of August gold futures has been dropping every day for the past two weeks. One day during each of the past few weeks, the market gapped open lower and left two sizeable gaps behind. On Friday, June 28, 2013, the market again gapped open lower, below Thursday's low, but this time filled the gap and settled above Thursday's settlement. After rotating within a $1187.0 to $1197.0 balance for the first two hours of the pit session, the market began to rally for the rest of the day, finishing near the highs. Because the market has come off so sharply over the past two weeks, leaving two large gaps, it is possible that the market has become oversold and a short cover rally may occur. This is not a prediction, but it is a scenario that traders must keep in mind when they prepare to trade.
After finding a $1210.0 to $1220.0 range to rotate in during much of the afternoon on Friday, the market rallied up to $1228.9 during the last hour of trading, leaving a $1222.0 to $1228.9 late-day spike up. Late-day spikes are a measuring stick after a market probes to a new level (high or low) late in the day. Whether the market accepts or rejects the late day spike is what we need to monitor for Monday, July 1, 2013.
If the market gains acceptance within - and builds value above - the late day spike, it may test the $1247.9 to $1270.7 gap above. It is not unusual for a market to need more than one attempt to fill large gaps.
If the market rejects the late day spike and trades below the afternoon balance range, it may re-enter the morning balance range. If the market builds value below the morning balance range, the next downside references on the monthly chart are $1174.7 and $1155.6.
Joseph Souhlakis began his career in commodities in early 2000 when he took a clerk job at the NYMEX for MBF Clearing Corp. For more than three years, Souhlakis acted as risk and position manager for some of the most successful traders in the crude oil and heating oil pits. In 2003, he became a NYMEX member and began his trading career. Souhlakis remained as a house trader for MBF Clearing Corp. until January 2007 when he transitioned to an independent trader. In January 2008, he made the full-time switch from floor trader to electronic trading from home. Learn more about Souhlakis by visiting www.justjoecharts.com. Follow him on Twitter @JustJoeCharts.
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