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Gold’s Bullish Pennant Points to Potential Upside Breakout

By:
Bruce Powers
Published: Mar 29, 2023, 20:02 GMT+00:00

Gold maintains its bullish bias during consolidation and pattern formation as it holds above the 10-Day EMA.

Gold, FX Empire

In this article:

Gold Forecast Video for 30.03.23 by Bruce Powers

Gold further consolidates with a second inside day as it forms a bullish pennant in preparation for its next move. Of course, a bullish pennant (small symmetrical triangle with flagpole) is bullish. But the pattern is not confirmed until there is an upside breakout. A failure before or after the breakout is always a possibility.

Chart Description automatically generated

Forms Bullish Pennant but Confirmation Needed

The upside potential is attractive as before the pennant consolidation formed gold advanced by 11.1% (flagpole) to 2,010 off the March 8 low. Such enthusiastic buying could be seen again if the pennant follows through to the upside as anticipated. So far, it is maintaining its bullish bias during consolidation phase as it is holding at or above support of the 10-Day EMA (orange).

As with any triangle pattern the chance for a breakout increases as price gets closer to the apex of the triangle. Gold has only about four or five days left before it reaches the apex. An upside breakout is first signaled on a rise above the top border line and then more clearly on a move above the small swing high at 1,975. A daily close above 1,975 will confirm the breakout.

Potential for Accelerated Price Appreciation

Ideally, upon a breakout price takes off and accelerates higher. That is the potential of a bullish pennant. At the same time, it a relatively small pattern and is more commonly used by traders than investors as volatility could increase following a move higher.

Potential Target of 2,158 Based on Flagpole Measurement

We can calculate a potential target from the pattern by measuring the advance in the flagpole and adding it to the top of the pattern. Note that the flagpole measure begins at the double bottom trigger (blue horizontal). In this case we estimate an initial minimum target of 2,158. Nevertheless, do not get too attached to the target price as that is one of the least reliable calculations of a trading plan. The important thing is that there is upside potential following a breakout.

Maintain Active Risk Management

On the downside, a pattern failure occurs if price drops through the bottom border line (10-Day EMA now at 1,956). A downside breakout is confirmed below 1,949 and then further below 1,944. Each price level is a recent daily low that forms the pennant.

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About the Author

Bruce boasts over 20 years in financial markets, holding senior roles such as Head of Trading Strategy at Relentless 13 Capital and Corporate Advisor at Chronos Futures. A CMT® charter holder and MBA in Finance, he's a renowned analyst and media figure, appearing on 150+ TV business shows.

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