Ultimately, this is a market that is building up enough momentum to make a bigger move, and now it is only a matter of watching the various levels to decide which way to follow. 

Gold markets rallied a bit on Friday to reach the $1950 level, an area that will be important to pay attention to not only because it is considered to be a “midcentury mark”, but it is also an area where we have seen resistance previously. If we can break above the $1950 level, then it is likely that this market will continue to rally from here.

Looking at this chart, if we can break above the $1950 level, then we could go looking to the $1970 level. The $1970 level is an area of resistance as well, so once we clear all of that, I would anticipate that gold could very well find its way to the $2000 level. This is an area that will cause quite a bit of headline noise, and I think volatility. However, we have sliced through there previously, so I do not necessarily think that it will be difficult to make that happen again.

The 50-day EMA sits at the $1914 level and is rising. It has been a dynamic support level for quite some time, so I think at this point it is likely that we would see plenty of interest if we do drop towards that area. Underneath there, the market has support at the $1900 level, which is a large, round, psychologically significant figure, and an area where we have seen buyers previously. In fact, I believe that this support level extends down to the $1880, so if we break down below all of that, then gold would be in serious trouble.

While we did attempt to rally on Friday, I would also point out that we are in a potential descending triangle, and I believe that the next day or two will be crucial as to where we go next, so keep an eye on that. The US dollar has its effect on this market as well, so make sure to pay attention to the US Dollar Index. Ultimately, this is a market that is building up enough momentum to make a bigger move, and now it is only a matter of watching the various levels to decide which way to follow. If you are a short-term trader, then the range-bound trading in this market has been a blessing.

I think that selling is all but impossible until we break down below the hammer.

The US dollar rallied significantly on Wednesday to break above the top of the hammer from the previous session, suggesting that we are in fact trying to recover overall. The market continues to hang about the 1.25 handle, which is a large, round, psychologically significant figure, and an area where we have seen a bounce previously. Because of this, I think it is more likely than not that we are going to see an attempt to stay within the longer-term consolidation area.

Another thing that helps the idea of this going higher is the fact that the FOMC Meeting Minutes were a bit more hawkish than a lot of traders had anticipated, and we have seen a spike in the US dollar overall during the trading session. Furthermore, the crude oil markets have broken down rather significantly as a surprise inventory builds and a softening of demand for gasoline has come into the picture as well. Looking at this chart, it is likely that if we can break above the top of the candlestick for the trading session on Wednesday that could open up a move to the 50-day EMA, perhaps even as high as the 1.28 level over the longer term.

The alternate scenario is that we will turn around and break down below the 1.24 handle, which would be a breakdown of the hammer that we had just formed. If you break down below the hammer, then it is going to be very negative for the US dollar, and we could see a spike in the value of the Canadian dollar. Because of this, I think is very likely that the selling pressure would pick up drastically and it could speed up.

That being said, when you look at the candlesticks over the last couple of weeks, we have seen the real body of each candlestick trend, and now we are starting to swing in the opposite direction. The explosive move during the trading session on Wednesday could be the beginning of a complete recovery, but obviously, it is going to take some time to determine whether or not that is going to be the case. Because of this, I think that selling is all but impossible until we break down below the hammer.

Remember, rallies during bear markets tend to be very vicious, and that could have been what we have just seen.

S&P 500 futures fell on Tuesday as the market has seen so much in the way of noise overall. This is a market that I think will continue to see noisy behavior, as there are a lot of uncertainties around the world. The S&P 500 is dealing with the idea of higher interest rates coming out of the United States, and it will perhaps weigh upon the index. The market has fallen from the top of the potential flag pattern, so I think it is only a matter of time before the buyers have to make a bigger decision.

If we were to break above the downtrend line of the flag, then it is obviously a bullish sign. The 4585 level is where we had previously seen a bit of a double top. This double top being broken to the upside then shows a continuation of the bullish pressure that could send this market higher. This would obviously open up the possibility of bigger games, but right now Wall Street has to decide whether or not interest rate hikes are going to continue to be something to fear.

Underneath, we have the 50-day EMA coming into the picture at 4456 and rising, so pay close attention to that area and see whether it would continue to offer support. If we were to break down below that level, then it is likely that the 200-day EMA near the 4400 level could be the next target to the downside. Breaking below there would then signify a downtrend yet again and could send markets scrambling. The market continues to see a lot of volatility, and probably the only thing that you will be able to count on is the choppiness.

As central banks around the world will continue to think about tightening, this will have a drastic effect on profits, and it is very likely that the S&P 500 still will think of this as “swimming upstream.” Ultimately, we need some type of impulsive and large candlestick to determine where we are going next. It certainly looks as if we are trying to build a bullish flag, but we need things to turn around rather quickly to get things moving in a positive manner. Remember, rallies during bear markets tend to be very vicious, and that could have been what we have just seen.