When several swings all point to target extensions which are close together in price, the zone often serves as a "price magnet" to pull price to that area. The targets then serve as resistance. Here's a current daily Gold chart, the June GC contract:

Click on image to enlarge!

I’ve used the red trendlines to show how this target zone was generated. Each decline has been multiplied by a factor of 1.272, our initial target extension, and projected upwards from the low of these downside moves. You’ll note that we have several 1.272 targets within 10 points of each other. While they’re not quite overlapping, it does call attention to the 1460 – 1470 area. Each target extension is where we’d look for a hold or pullback, and this is essentially saying that each swing within this rally shows a logical termination at approximately the same price.

Depending on the trade management techniques which are appropriate for your trading plan, this is a good area to scale out, tighten a stop on any longer term gold based position, or even exit the position altogether. In any event we expect to see at least a pullback from these levels and anyone holding should be prepared for that likelihood. In general, if this is going to rally through the target zone it should do so smoothly and a tight stop based on Fibonacci support would not be hit.

For more from Mark including his “Chart of the Day”, visit MJBraun.net.