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A Potential Short Sale Entry For The SPDR Gold Trust ETF (GLD)

March 18th, 2013

buyers and sellersThe impressive, long-term bullish trend (from 2005 to 2011) in gold appears to be reaching an end. Since forming an all-time high in September 2011, SPDR Gold Trust ($GLD), a popular ETF proxy for the spot gold commodity, has merely been oscillating in a sideways range.

On the weekly chart of $GLD below, notice that the ETF attempted to break out above key horizontal price resistance in October 2012, but was unable to do so. As such, $GLD formed a significant “lower high” on its long-term chart. Nevertheless, there’s still a major base of horizontal price support around the $150 level:

$GLD breaks uptrend


The next near-term move in $GLD could be a bounce into resistance in the $158 to $160 range. In this area, there is new resistance of the prior lows from December 2012 and January 2013, as well as resistance of the 10-week moving average (roughly the same as the 50-day moving average) and the 40-week moving average (approximately equal to the 200-day moving average).

If $GLD bounces to this level and stalls, it will form a second significant “lower high.” This would be bearish and could easily lead to a breakdown below major support at the $150 area on the next move down.

Another possible scenario for $GLD is that it fails to bounce much higher and simply breaks below its four-week base of support (below $150) without first forming another lower high.

Regardless of how $GLD plays out, we have added this precious metal ETF to our internal watchlist as a potential short sale entry in the coming weeks (traders with non-marginable cash accounts could buy the inversely correlated short ETF of gold instead). A short entry would be based on whichever of the two scenarios occur first: on a bounce to the $158 to $160 area that stalls OR a breakdown below the $150 support level that subsequently bounces into resistance. As always, we will give regular subscribers a heads up with our exact entry, stop, and target prices if we add this swing trade setup to our” official” watchlist. But for now, we are waiting to see how the next near-term move plays out.

Two weeks ago, we pointed out that ProShares UltraShort 20+ Year Treasury Bond ETF ($TBT) was setting up as an intermediate-term Trend Reversal play (see the recap from our trading blog here). Throughout last week, we were stalking the non-leveraged version of this ETF (ProShares Short 20+ Year Treasury Bond ETF – $TBF) for buy entry if it rallied above the high of the previous week.

Although $TBF did not yet trigger for buy entry, it remains on our watchlist going into this week because last week’s price action was indicative of bullish consolidation. The price traded in a tight and narrow range, near the previous week’s high, as volume declined. Therefore, we still like this setup for buy entry if it moves above the high of the past two weeks. An updated weekly chart of $TBF is shown below:

$TBF trend reversal setup

As of Sunday evening in the US, the major indexes in Asia are trading roughly 2% lower on Monday morning. This is likely to carry over and pressure our domestic markets on Monday. Although our rule-based technique for timing the market has been in “buy” mode since March 5, we have mentioned several times over the past few weeks that the buy signal was never confirmed by higher volume (institutional accumulation). This is why all recent buy entries have been on lighter than normal share size (25% to 50% of maximum capital risk of $500 per trade). We also have been maintaining a sizeable position of cash in both the model ETF and stock portfolios. Therefore, even if stocks suddenly break sharply lower, our losses on the long side will be limited. Furthermore, we already have one short position working as well ($XME).

Have you given our (presently free) swing trading stock screener a try yet? Learn more about this and our other services for short term traders at www.MorpheusTrading.com.


NYSE:GLD


 

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