Trading Gold Futures 2012-04-08

Here we will examine a potential opportunity for trading gold futures. We will be looking at a daily futures chart for June gold futures. I will discuss an MACD divergence with a graphic example, and I will mention COT without a graphic example (I will explain why not later).

Let us look at the chart daily for June gold futures. Pay special attention to the red arrow indicating a new price low, as well as to the upwardly sloping MACD histogram and the MACD moving averages.

MACD Divergence

Observe the previous low area occurring during mid-March in the 1650 price range. This is where the MACD moving averages bottomed. By this time, the MACD histogram was already showing a divergence, as prices were making new lows but the MACD histogram sloping upwards. This was our first clue to open our eyes and start paying attention. Prices rebounded to the price moving average briefly before making a the new lows in which we currently are.

Prices are now in the new low zone (new low for the relatively recent past). The MACD histogram has continued its upward sloping direction, and this time it is corroborated by a higher MACD moving average low. To me, this is an entry signal. Ideally, I would have liked to have entered prior to Good Friday, but I was busy and I missed it. I am currently planning an entry on Sunday evening when markets open.

COT

Let us now speak about the COT regarding this futures contract. First, I do not have COT (Commitment of Traders) on my futures trading platform. This is unfortunate, but not a big deal. When I want to look at the COT data, I go to a website called barchart.com. They have a lot of indicators, and its pretty easy to look at the COT data on a futures chart for most major futures.

If you open up the chart on barchart.com for June gold futures and then apply the COT indicator, you will see that the commercials are "relatively high". That is to say that they are buying. When I say "high" I mean they are in the upper zone of where they have been for the past 6-12 months. This is occurring simultaneously to the new lows that price is making. I won't go into detail as to why, but this is telling me to look for a buying opportunity trading gold futures. Having observed the MACD divergence, I am now ready to enter a trade. As I said earlier, I will most likely enter a long trade late Sunday.

Also, I will probably write an article about COT at some point in the future.

Summary

I have observed what I believe to be two separate buy signals occurring simultaneously. First, and more "big picture", the COT is showing that commercials are "buying" (or maybe just selling less). Second, there is an MACD divergence giving a buy signal. It is important for you to bear in mind, that I am not implying that a large gold bull market will ensue. A lot of people are fanatical over trading gold futures from the long side, but in this particular case I am just looking for a 100-150 point rise in the next few weeks.

If I enter a trade, I will post it as a blog entry.

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