XAU/USD – Gold Unchanged Despite Wheels Coming Off Bull-Cart

Following the steepest fall  in US stocks since Nov 2012, Asian equities enhanced bearish sentiment with both Nikkei 225 and Hang Seng Index trading lower. Nikkei 225 fell 1.9% while Hang Seng Index declined by 1.7% at the time of writing, the largest drop since Nov as well.

Hang Seng Index Futures Daily Chart

Bullish momentum on the Hang Seng Index is broken with price trading below the rising trendline and Stochastic reading showing a top is in place. However price may still find support along the consolidation zone between 23,150 to 23,450.

N225 Futures Daily Chart

Nikkei does not appear to be as bearish as HSI. Support is also not far away around 11,000 round figure. Should 11,000 level be broken, we could see price finding further support in the form of the lower rising trendline which represent a slower but undeniably bullish momentum. Previous accelerated bullish momentum was already broken back in Mid Jan 2013, and current sell-off does not change the situation one bit.

Traders are asking the same questions similar to US equities – Are we seeing a full risk-off correction?

The answer cannot be certain, but we have reasons to believe that prices are facing slight profit taking weighing it down rather than a full shift in sentiment. This view is supported by both HSI and N225 finding support while US Index Futures are currently trading in the green, instead of heading lower when selling appear to be the narrative for today.

Also, a big indication of risk – Gold – appears to be unmoved.

Gold/USD Daily Chart

A record selling of equities was not matched with a record rally in Gold, suggesting that all the headlines about Fear entering the market is overstated. From a technical point of view, Gold appears to be heading lower with a falling Channel. Current price looks to hit Channel Top pretty soon which is also the confluence of resistance near 1,686. If fear about Euro-Zone crisis, or Fiscal Cliff, or whatever that is trendy truly hit the market, we should be able to see Gold trading higher, which would also most likely break the resistance/Channel Top confluence to signal a strong bullish breakout. Though evidence is yet unseen from both US and Asian equities, Stochastic indicator on Gold hints at such a possibility with readings bottoming and Stoch/Signal line crossing. Should we see further selling in equities and a breakthrough in Gold, bulls should be afraid for a larger correction which could erase the entirety of Jan gains.

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