Who stole the gold? The yellow metal's dramatic fall from $1,340 to below $1,260 is a break-and-enter theft on a grand scale.
It's going to take a while to find out who stole these profits from open long positions. But what's more important is to assess the extent of the damage and the potential for recovery.
Let's start with damage assessment. The fall below the historical resistance and support level near $1,290 is critical. It would be reasonable to expect that this level would provide support for any retracement but instead gold fell straight through this level. Chalk one up for the bears.
The uptrend with gold was well defined using a Guppy Multiple Moving Average (GMMA) indicator. The long-term GMMA was well separated and this generally shows strong buying support from investors. The upper edge of the long term GMMA was a little above the historical support level near $1,290. The fall below the upper edge of the long-term GMMA is not good. Chalk another one up for the bears.
The gold price penetrated fully through the long-term GMMA, with a close near $1,260, which is also the lower edge of the long-term GMMA. The long-term GMMA acts as a shock absorber and we'd expect to see that investors' buying slow the market fall and contribute to a rebound. We saw this in May when the long-term GMMA acted as a rebound point. The rapid drop to this lower level is another feature we can chalk up for the bears.
Three strikes for the bears doesn't mean gold is out for the count, though, but it may take some time to get off the canvas.
It's too early to suggest how this may develop, but we can set technical features that help make a trading decisions. A continued fall below the edge of the long-term GMMA has support near $1,180. A rebound from the lower edge of the long-term GMMA has a resistance target near $1,290.
The only glimmers of light are the strong separation in the long-term GMMA and the lack of reaction from the short-term GMMA. Currently this dip has the characteristics of a reactive dip rather than a change in the trend. Aggressive traders use the ANTSSYS method to trade the rally rebound. Cautious traders and investors wait for rebound proof before joining the rally for a move above $1,290.
The bears have smashed gold but this attack is not yet confirmed as a change in the trend direction.
Daryl Guppy is a trader and the author of "Trend Trading, The 36 Strategies of the Chinese for Financial Traders," available at guppytraders.com. He is a regular guest on CNBC and a speaker at trading conferences in Asia, Australia and Europe.