Wedges and Pennants
By Colin Twiggs
September 2, 2008 4:00 a.m. ET (6:00 p.m. AET)
Spot gold respected the new resistance level at $850 before breaking downwards from its recent pennant. Although the pattern resembles a rising wedge, anything less than 3 weeks duration should be considered a pennant (continuation pattern). Expect another test of primary support at $770.
The long-term target for the primary down-trend is calculated as $700, that is $850 - ($1000 - $850).
West Texas Intermediate Crude completed a pennant (again the duration is too short to be a triangle) with a downward breakout, signaling further weakness. Penetration of support at $110 would warn of a primary down-trend — confirmed if the key psychological level of $100 is broken.
The Chinese Purchasing Managers Index (PMI) fell below 50 in August, indicating that activity is contracting. But whether this will translate into a drop in crude oil consumption (and a strong primary down-trend) is too soon to tell.
The euro displays a falling wedge pattern, signaling retracement to test the new resistance level at $1.50.
Penetration of the long-term rising trendline would warn of a primary trend reversal — confirmed if support at $1.43 is broken.
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The dollar is again testing support at 108.50 against the yen. Downward breakout would warn of a bull trap — and a test of primary support at 103.50. Recovery above 111.00, on the other hand, would confirm the primary up-trend.
The Australian dollar fell sharply after the RBA announced a 0.25% reduction in the official cash rate, breaking support at $0.85 to signal a test of $0.77. Expect a retracement to test the new resistance level, but recovery above $0.85 is unlikely — and would warn of a bear trap.
The Aussie broke through short-term support at 93 and is headed for the band of primary support between 88 and 90.
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