Gold's 4-day drop shows these clues a trend reversal could be forming; here's what to watch

Gold watch? As a verb, it describes what a lot of traders and maybe even investors are doing now! It finished day 4 of the drop and if it's one type of trend reversal pattern, we may have to give it another day or two before looking for a reaction rally. The lower Bollinger Band (BB) may give support on such a dig lower - if so, then a bounce is likely to find both target and resistance at the BB midline. Looking at the GLD and $GOLD charts below also shows that the 50 and 200 day moving averages may well play a role.

I'd really prefer to wait several more days to fine-tune interpretation of how this correction plays into the bigger picture. So for now, the comments above should work for the next couple or few days. However, if gold were to drop under the lower Bollinger Band without getting a bounce from it first, then it might start creating a more bearish scenario. But we won't assume that for now.

Tony Caldaro in his OEW update (links at right side of the page) mentions some thoughts on gold, and I'm not going to get into the weeds about the Elliott Wave count until a bit more time passes. Having more printed onto the charts will help that effort.

For now, we see that gold moved under the prior swing low on substantial selling volumes, and dropped under the BB midline. That makes it ripe to make a classic trend reversal pattern. The rat of such a pattern calls for it to bounce, maybe starting tomorrow or Thursday and maybe after testing that lower BB. Then it would make a low-volume rise, maybe to that BB midline. And only then does the classic reversal pattern call for it to move and preferably close under the prior day's low, as a swing trade sell trigger. This would be an example of what we mean by confirmation of a trend change. It may not seem as exciting as picking off the top tick; but it's much safer with a better risk/reward edge. And assuming it then confirms and plays out, it feels every bit as good when later TMAR'ing (take money and run) the profits ... So give it a few more days and then we'll see!