Gold broke technical supports, shown on the chart, Tuesday, which could have important implications for the short term.
The break is ominous because the support that is now broken was a strong support characterized by a triple bottom. This triple bottom was formed at the end of a down trend that started in March.
On March 14, 2014, I made an unequivocal call to sell/short gold and silver. That call has proven spot on, as it coincided with the exact top in gold as shown on the chart. This was the top of the upswing that started after gold performed a sequence of an exhaustion gap, double bottom, an island, and an island reversal in December 2013 as shown on the chart.
The big question for investors is what is next. At this time, it is more likely than not that gold can fall to the level marked strong support on the chart, around $114-$115 on the gold ETF GLD. The equivalent in gold is $1190-$1200.
From a technical perspective, there are four reasons why the next support zone is a strong one. These are previous formations of an island, island reversal, start of an uptrend, and finally a breakdown from the uptrend resolved by gold moving strongly above the uptrend line.
The island is marked with an orange circle on the chart. An island is characterized by gaps on both the left side and the right side. An island reversal occurs when gold breaks out to the upside with a strong up gap from the island. Island reversal in this case is a strong bullish pattern…Read more at MarketWatch.