BarroMetrics Views: Gold March 22 2010
Gold is providing a low risk short.
I see usually see a sideways market as a Market Profile bell curve. Figure 1 shows how I ‘see’ Gold’s structure. The key levels to watch are 1149.00 and 1095.00
Since the market is in congestion and we are coming off the Primary Buy Zone (1048 to 1063), what should happen after the market completes its formation of the Value Area, is move to the Primary Sell Zone, 1029 to 1230, The theoretical Value Area High is 1143 but there is a spike high at 1149 so I’ll use that price as the top of value. The bottom of value is 1095.
Now if instead of accepting above 1149, Gold accepts below 1095 before accepting above 1149, we can expect to see 1048 breached . Acceptance below 1048 will suggest a move to 1025 to 1028.
The stop for a short below 1098, would be above the high of the start of the directional move down on March 19. Let’s say 1133.7. If we assume that we get a fill around 1094, we’ll have a risk of about $40.00. Since the pattern suggests a breach of (but not necessarily acceptance below) 1048:
- I would exit the first third at 1050 to 1052 and
- move my stop to breakeven on the second third as soon as I exit the first 1/3.
- The stop on the remaining 1/3 would remain at the initial location.
Normally I would not exit the first 1/3 until twice the value of my initial stop; and after exiting the first 1/3, I would leave the initial stop at its original location on the remaining positions.
I would take a different course on this occasion because:
- The Primary Buy Zone is strong support
- To get to the Primary Buy Zone,Gold needs to get through a MIDAS support. While the nature of MIDAS usually means a break below, the breach of MIDAS seems to exact a price; and often after the breach, the market rebounds.
So, since the pattern usually attains the minimum target of breaching the Primary Zone, I vary the 1st 1/3 exit.
FIGURE 1 Gold Market Profile
FIGURE 2 Gold 18-day Swing