Let's take a look at this daily chart of February YG, the NYSE-Liffe mini gold contract. You can see just by glancing at the chart that this is consolidating with a pattern of higher lows and lower highs. If you'd like it would be very easy to draw trend lines from peak to peak and valley to valley to show a coil or triangle. But the advantage of using Fibonacci is that it gives us very specific numbers which would have to break in order to clear consolidation.

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This contract has been unable to break the bold blue .786 retracements in either direction. Without a break of one of those levels, price cannot extend to a target level, so it coils up tighter and tighter. Let’s zoom in on recent swings to illustrate:

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The red trendlines show how the next upside target is calculated along with intervening resistance. The current high to low swing was established with the high put in on November 8th, and the low on November 21st. .786 of this swing comes in at 1777.60 and that serves as our current key resistance. If that breaks, we’re looking to the 1.272 target extension of the same swing, 1844.60. Right above that is the next key resistance, 1845.90. That’s very important resistance since a break would imply a new daily swing high with the target at 2032. Since the prior daily high was made at extreme targets, overbought, this market might not be ready to commit to a new daily swing high in the immediate future. The key will be whether we hold or break the 1845.90 resistance. So that larger resistance level may very well put us back into consolidation, but at least we know we’re likely to see that overlap of target and resistance on a break of the closer 1777.60.

So what’s the probability of breaking that 1777.60? This is one place where it can be very helpful to step down to a shorter timeframe. Here’s a 60 minute chart:

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The trendlines illustrate the consolidation on a tighter timeframe. Note how they’ve intersected the closest .786 levels on both sides. If this continues to rally and clears 1755, the initial upside target is 1785.20. Reaching this level would constitute a break of 1777.60 too, putting this on track for the daily targets discussed above.

This gives us an idea of what to look for on intraday charts; specific levels which, if broken, can have a major impact on the daily patterns too. Of course there’s a similar downside possibility; if tested look for a hold or break of 1690.50 to show us the commitment to downside targets instead.

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