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Why Gold Should Bounce

AP

Gold continued down its slippery slope on Monday and into Tuesday morning, as the market reached a low of $1,321.50.

After its steepest drop in 30 years, investors are finding value at these low levels, as the market is trading $70 up from the low and just below $1,400.

(Read More: Gold Rebounds After Previous Sessions's Rout)

On Monday morning, gold reached just above our first resistance at $1,428 before reversing course and continuing lower. Yesterday's early $1,385 low was taken out later in the session, as margin calls caused further liquidation.

It is no secret that gold is a fast market right now, and can trade $10 to $20 ranges in a less than a minute. We suggest using options to play this market right now, to make it easier to define your risk.

We expect to see some support at $1,355 to $1,360. The morning's high is just above $1,400—if we close back above here, it will signal a possible slowdown and consolidation. A close back above $1,424 to $1,428 will likely signal a consolidation higher, as investors find value. The major upside target is $1,474 to $1,478, and the major downside target is $1.300.90.

It goes without saying that we will be watching this market closely.

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