Gold – and it’s popular proxy the SPDR Gold ETF (NYSE:GLD) – has come into a very interesting technical (chart) level right here on both the daily and weekly charts as we begin 2011.
For investors and traders in gold/GLD, it’s a good idea to be aware of these levels and the IF/THEN chart contingencies these create if the level holds… or breaks.
Let’s start with the Weekly GLD Structure and then slide down to the Daily:
The ETF has doubled in price since the ‘pit’ of the Financial Crisis that inflamed around October 2008 – then, (NYSE:GLD) traded at the $70 per share level (gold was at $700 respectively).
Now as we begin 2011 with much better economic circumstances, gold has doubled to the $1,400 level and as you can see (NYSE:GLD) neared the $140 level recently.
Interesting, but what now?
After an extended rally, GLD is showing signs of weakness in the form of obvious negative momentum divergences as a slight “arc” pattern has formed in price.
Right now, that’s a big CAUTION signal, but not yet a panic signal by any means. It’s a glaring non-confirmation, but price (and trend) is superior to any indicator.
Turning now to price, the objective level to watch on the weekly chart is the $130 price level, which is currently the rising 20 week EMA ($131.36 right now to be exact).
In the event that price holds the weekly EMA support, then the divergence is ‘broken’ or ‘busted,’ and the rally will likely continue beyond $140.
HOWEVER, a firm price breakdown under the key $130 level targets an immediate swing back to prior resistance which will – by that time – form a confluence with BOTH the rising 50 week EMA (blue) and lower Bollinger Band – a key level to play for at $125 in the event sellers push gold under $130.
So that’s the MAIN IDEA from a simple chart perspective – monitor what happens now at the $130 level (support – yes or no?) and then IF support breaks, then we could see a retest of weekly support at $125.
With that in mind, let’s see the additional details the daily chart reveals:
I always suggest you build a ‘thesis’ first on the weekly (or even monthly) chart and then monitor – for confirmation/non-confirmation – the details/data that emerge in real time from the lower frames (such as the daily chart for a key reference).
That being said, the chart picture doesn’t look good for Gold/Gold right now – of course that could change suddenly, but right now, the picture is of non-confirmation and caution.
A little “Three Push” pattern – complete with visual negative momentum divergence on each recent price push to the $139 level – has undercut the recent bullish trend.
Divergences are CONCEPTS or COMPONENTS that help us create a narrative – but again it’s down to price for official signals.
Turning right now to price, the signal is that price is currently under the rising 50 day EMA – a fate that hasn’t happened except for a little nip under (with support just above the 200 day SMA as expected) in July (when stocks bottomed).
The key DAILY level to watch is around $134 – which is setting up to be a (bearish) crossover of the falling 20 day and flattening 50 day EMA – which would be expected to hold as resistance.
So if buyers push price BACK above the 50 then 20 day EMAs – clearing back above $135 – then the picture turns back to the bullish camp.
BUT UNTIL THEN, it’s probably best to take a more cautious posture, particularly if sellers push the price down through the prior daily support swing lows as labeled where we are now, at $132, and then the BIG one at $130.
In other words – and as I show with color bands in my weekly reports – it’s perhaps worth taking a:
neutral/cautious (see what happens) stance while price is between $130 and $135;
a bullish “trend resurgence” stance above $135 (immediate target $140);
but a more bearish stance on a firm break of both Daily and Weekly support at $130 (target the weekly $125 level).
As a reminder, we never know the future, but rely on objective price levels – and confirmation/non-confirmation from key indicators and volume – for our decision-making and opportunity/risk management.
I’ll be discussing more about trade execution tactics of patterns and structure (what signals actually trigger trades from an aggressive and conservative standpoint, for example) in a presentation on “Trade Execution Tactics” at the New York Trader’s Expo – February 20 – 23.
I really enjoy the Expos and traders of all experience levels benefit from attending and networking and I hope you can join us all there!
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.