(Kitco News) - June gold futures are treading water, holding above 50% Fibonacci retracement support for now. The market has posted a steep correction the past two weeks, and the question is will the gold market be able to stabilize above support? Let's take a look at the chart.
On the weekly June gold chart (not shown here), the market posted a bearish outside week March 21. That signaled a short-term top at $1,392.20, which is now major resistance. The market sold off steadily from March 17 to the March 28 low at $1,286.10, which is now important short-term support. On the recent sell-off move, gold bears pressed the market under a rising bull trendline drawn off the December 31 low, which was a bearish chart signal.
Taking a look at Figure 1 below, however, for now the gold market has stabilized just above 50% retracement support off the Dec. 31-March 17 rally move. Additionally, daily momentum studies shown below the price action reveal oversold readings. The momentum indicators have not yet turned up, and do not reveal any bullish divergences. But, if the market can stabilize here, a bullish turn in daily momentum could emerge.
Watch momentum this week. A push above the 30% mark on the 9-day relative strength index would be a positive signal and a move across the 20 line on slow stochastics would be encouraging to the bulls.
What price levels do traders need to watch now?
On the upside, very short-term resistance lies at $1,299.40-$1,300.60. A sustained push above there would be a short-term positive signal, with the next upside target and resistance point at $1,307.50. If June gold can sustain gains above minor near term resistance at $1,307.50 it would suggest the market is gaining some traction, and would be a minor bullish signal.
But, looking at the downside, if support at $1,286.10 gives way on a closing basis, gold will be vulnerable to a fresh selling wave, with next downside support at the 61.8% Fibonacci retracement around the $1,265 level.
Gold has sold off sharply the past two weeks. There has been technical damage on the chart. But, the market is now oversold and holding above Fibonacci retracement support. Watch the short-term levels closely from here.
By Kira Brecht, Kitco.comFollow her on Twitter @KiraBrecht
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