Instead of charting a regular stock index today like I typically do each weekend, I’m charting a gold ETF, GLD. GLD attempts to reflect the performance of the price of gold bullion. Gold tends to move in a somewhat inverse relationship with the major indices and just as charts of the DJIA and SPX show they are near their channel lows, gold is near its trading channel high. With conditions as volatile as they are these days that doesn’t mean that gold is guaranteed to drop and stocks to rally, but it does make an interesting chart to read.
- Line A below shows the trend line of slightly lower highs over the past year.
- Line B (drawn by my five year old son who loves to do technical analysis with me) shows where last week’s highs match up over the past year.
- Line C is the shorter trend line of higher highs.
- Line D is the trend line of higher lows. That could be the best line of support if the ceiling from lines A and B hold.
- Line E was the trend line of lower lows that finally stopped coming into play. I left it in the screen shot below to illustrate how GLD tends to enjoy trend lines.
Last week’s closing price hit hard resistance with lines A, B and C. I see GLD having a hard time getting past these trend lines before retesting line D and maybe not too soon after that even. The 10, 20 and 50 day moving averages will aid in keeping GLD up, but it’ll come down to how the markets react to the stimulus bill being signed and whatever other announcements come from the administration over the rest of this month.
Any trades on or against GLD in the coming days should be hedged carefully. A dip could be short lived, but being bullish at these prices so close to the all time highs could be more than a little dangerous. If Williams %R for GLD breaks below the overbought levels that could be the best time to make a bear based trade. I don’t have any orders in for it yet, but might enter a vertical call spread for a credit or a vertical put spread for a debit. Downside might be limited too, but with enough room to turn a small profit.
Great analysis. We trade gold a lot so it’s mucho appreciado…
P.S. I have a 5 year old daughter and she’s not even close to being able to do technical analysis. You have a prodigy on your hands!
He’s learning to use the mouse. He likes to draw and likes patterns, so he spotted that line before I did. I think he had more fun when we started drawing faces using Microsoft Paint, but that wasn’t relevant. 🙂
I trade GLD a lot also. It is nice to see the channel to trade in.
Jon Nadler who is an analyst at Kitco Bullion Dealers in Montreal expects by summer that the dollar will begin to recover and gold will return to stabilized level of $650 – $750 an ounce.