Gold Tests Key Support Level

By Colin Twiggs
July 22, 2010 6:00 a.m. ET (8:00 p:m AET)

These extracts from my trading diary are for educational purposes and should not be interpreted as investment or trading advice. Full terms and conditions can be found at Terms of Use.

US Dollar Index

The US Dollar Index found short-term support at 82.5. Penetration of the rising trendline indicates weakness. Twiggs Momentum respect of the zero line (from below) would warn of reversal to a primary down-trend.

Gold

Gold is headed for a test of key support at $1170. Failure would warn of another test of primary support at $1060. Recovery above resistance at $1220 is less likely, but would indicate an advance to $1380*; breakout above $1260 would confirm. Large bearish divergence on Twiggs Momentum, however, warns of reversal to a primary down-trend.

* Target calculation: 1220 + ( 1220 - 1060 ) = 1380

Crude Oil

Crude is headed for another test of resistance at $80. Breakout would signal an advance to the upper border of the broadening wedge. Reversal below primary support at $70, however would signal a primary down-trend with an initial target of 60*. Twiggs Momentum respect of the zero line (from below) would be a bear signal.

* Target calculation: 70 - ( 80 - 70 ) = 60

Euro

The euro found short-term resistance at $1.30 and is retracing to test support at $1.25. Penetration of the descending trendline indicates the primary down-trend is weakening. Respect of support would strengthen the chance of a reversal, but confirmation would only come from a higher trough followed by a new high. Reversal below the rising trendline, however, would indicate another test of $1.19 and offer a long-term target of $1.10*. Twiggs Momentum crossed to above zero but a shallow peak would indicate continuation of the primary down-trend.

* Target calculation: 1.20 - ( 1.30 - 1.20 ) = 1.10

UK Pound Sterling

The pound also signals a weakening down-trend against the dollar, testing resistance at $1.55. Bullish divergence on Twiggs Momentum indicates that a primary reversal is likely. Expect retracement to test support at $1.48, but respect of that level would make a strong bull signal. Failure is less likely, but would warn of another test of primary support at $1.43.

Japanese Yen

The dollar is headed for a test of primary support at ¥85. Failure would offer a target of ¥75*, but expect strong support at the 1995 low of ¥80. Declining Twiggs Momentum confirms the strong down-trend; further peaks that respect the zero line from below would strengthen the signal. Recovery above the descending trendline is unlikely, but would indicate that the down-trend is weakening.

* Target calculations: 85 - ( 95 - 85 ) = 75

Australian Dollar

The Aussie dollar is testing resistance at $0.885 after a short retracement, indicating that upward breakout and an advance to $0.94 is likely. Reversal below the rising trendline, however, would warn of trend weakness. Twiggs Momentum needs to continue rising (above 5%) to provide evidence of an up-trend; reversal below zero would be a bear signal.

The great end of education is to discipline rather than to furnish the mind; to train it to the use of its own powers, rather than fill it with the accumulation of others.

~ Tryon Edwards