April Gold Set Up Volatile Move

April Gold has been trading in a tight range since it posted an expanded range of $1682.80 to $1634.70 on March 14. From a technical perspective, the trading action can best be described as a series of inside trading days. This is almost a sure sign of impending volatility. Since the main trend is down and “a trend in motion is likely to remain in motion until acted upon by a strong outside force”, traders have to be leaning to the downside.

Based on the main range of $1526.20 to $1792.70, a major retracement zone has been created at $1659.45 to $1628.00. Over the past six days, the April Gold contract has been straddling the 50 percent price level at $1659.45 in an effort to establish support. At the same time, the Fibonacci price level at $1628.00 has not actually been tested with an exact hit, but it looks as if buyers have been coming in slightly above this level. Nonetheless, the buying hasn’t been strong enough to generate even a two-bar swing to the upside.

In addition to the retracement zone, a pair of Gann angles has created a triangle pattern. The fact that April Gold is nearing the apex of this triangle is another sign of impending volatility. The downtrending Gann angle is at $1664.70 today while the uptrending Gann angle comes in at $1638.20. A breakout through either one of these angles is likely to trigger an accelerated move especially since the market has been trading in a tight and narrow range over the past week.

The triangle chart pattern is a non-trending pattern. This means that while the triangle has been forming, the April Gold market has been moving in a sideways manner. If you draw a straight line from mid-January, you’ll see that the market is trading at essentially the same price. Traders by nature don’t like tight ranges. They tend to prefer movement which is why April Gold is likely to move in a big way once it clears the zone that has created the compressed price action.

A break through the uptrending Gann angle at $1638.20 is likely to run into trouble at the Fibonacci price level at $1628.00, but once this level is cleared, April Gold has a clean shot at reaching $1600.00.

On the upside, regaining the bullish side of the 50 percent level at $1659.45 could be a sign of strength, but the market will still have to take out the downtrending Gann angle at $1664.70 to ignite an even bigger move. The most interesting set up occurs on Thursday, March 22 when the downtrending Gann angle and the 50 percent price level form a tight resistance cluster at $1660.70 to $1659.45 respectively. The first test of this cluster may encourage renewed selling pressure, but if this area is overcome by strong buyers then look for an expanded range to the downside.

At this time, all you can do is be patient and allow the market to make its move. The chart pattern suggests impending volatility and the trend indicates a bias to the downside, but traders have to be flexible enough to trade both sides of the market. I don’t expect any “fake out” action so traders have to be prepared to go the way of the move because once the market decides to breakout; volume is expected to rise as traders pile in to support the move.