Gold Investing: Interesting Pattern Repetition To Monitor In Gold (GLD, GDX, IAU)

Corey Rosenbloom:  There seems to be a clean pattern repeating itself today that developed exactly one year ago which I’m finding interesting.

Let’s take a look at the pattern then, compare it to now, and over the next few weeks, see if the current future pathway of the pattern plays out as it did back in July 2010.

First, here’s the broader picture which shows the repeating pattern of price swings:

First, the little numbers in the chart are NOT Elliott Waves – they’re just calling attention to the little swings that form the bigger six-point pattern I’ve described in the chart above.

First, we have a rally phase with a mini-pullback that forms the “123″ portion of the price structure.

Then – here’s the interesting part – we have an initial “Thrust” or sharp price slide that makes up the 4th point – this culminates with a new momentum low (seen in the charts below).

We then are treated to what I like to call a “Last Gasp” or more popularly, “Dead Cat” corrective (the swings compress) rally into the prior high which then gives way to the final part – #6 – of the pattern which is the downside follow-through after negative divergences into the point #5 high.

It’s not a huge or terminal pattern – in fact, after it completed, gold rallied sharply after it bottomed in July 2010.

I’m monitoring the potential that we are in the middle of the #6 down-swing phase that occurred last July which resulted in a slight decline in gold prices.

The pattern – and the timing – are eerily similar as we start into July 2011.  It’s not magic nor is it guaranteed, but it’s certainly something to watch as July unfolds.

Here – let’s step inside (with indicators) the pattern as seen from April – July 2010:

Jumping right to the point, we see the up-rally that ended with the May 2010 high which gave-way to the #4 “thrust” (sharp price swing that also created a new momentum low).

After that, we had the “Dead Cat” or “Last Gasp” rally to a slight new high which ended on a negative momentum divergence (#5) ahead of the final resolution phase, taking price back to the 200d SMA at the end of July.

How does this compare to 2011?  Good question:

Though the initial rally phase was longer (it started in February), the final pattern peak was also in May 2011 which gave way to a sharp downside “Thrust” (new momentum low off a sharp sell-off swing).

A similar corrective/overlapping rally – “Last Gasp” – took us just shy of the prior swing high yet there were still negative divergences undercutting the price structure.

The current points 1 – 5 are very similar to that of 2010 which resulted in a slight pullback in July.

The question now appears:

Given the structural (price) similarities from 2010 to 2011, will the final Point 6 decline  take us back to the low of the thrust price ($1,460) or perhaps on down to the rising 200d SMA (which will rise to the $1,430 to $1,440 level soon)?

That’s something to watch as we start and move through July.

If the pattern holds, then you’re looking at the pathway forward through July. Expect the decline phase to take us to the $1,450 region to bottom in July.

If however, gold accelerates and rallies higher (breaking this structural similarity), then that would be a bullish sign that the “gravitational” or “historical” pull of the pattern is broken and that would be a bullish sign.

No one knows the future, but planning little ‘pathways’ like this can help us with our positioning (if what we expect actually occurs) and risk management (if it does not).

Related ETFs:  SPDR Gold ETF (NYSE:GLD), Market Vectors Gold Miners ETF (NYSE:GDX), iShares COMEX Gold Trust (NYSE:IAU), PowerShares DB Gold Double Short ETN (NYSE:DZZ).

Written By Corey Rosenbloom, CMT From Afraid To Trade  

My name is Corey Rosenbloom, CMT (Chartered Market Technician) trader, educator, analyst, and I am excited to share with you my experiences studying and trading the markets and to hear from you regarding your experiences, challenges, and frustrations, and successes. My goal is to create a community dedicated to reaching out to those who have been burned by the market or are anxious about risking their money to make money in the stock, options, or futures markets. Together, we can share strategies and learn how to overcome crippling fears that keep us from achieving our highest potential.

Leave a Reply

Your email address will not be published. Required fields are marked *