Stock Chart Analysis GLD

Posted by downtowntrader | 9/03/2009 11:49:00 PM View Comments

Stock Chart Analysis GLD
SPDR Gold Trust (ETF) (Public, NYSE:GLD)

Really nice follow through by the metals complex today after a strong move yesterday. Volume has been rising on move higher, and everyone is wondering if this is "THE" gold breakout that they have been waiting for. The one thing that has stood out to me recently is how Gold and Silver are holding up even on days where the dollar is strong. While there are a million reasons as to why gold could rally from here, to me the why is secondary. The charts are giving us plenty of clues that something is up, and that is good enough for me.

Below is a chart showing both Gold and the Dollar Index. This chart is showing that Gold has continued to rise over the past ten years with less regard for the dollar than you would think. While the inverse intermarket relationship between the two is generally accurate, over the past few years the relationship has been decoupling. If you simply glance at the chart the relationships hold true as gold is basically moving from the lower left side to the upper right side signaling a bull market. The Dollar has been basically the opposite. However, if you dig a little deeper, you will notice that the Dollar has continued to rise even during flat periods for the dollar and more recently, despite dollar strength. It will be interesting to see if this relationship can continue to decouple if gold clears resistance. Oil decoupled from the dollar for a long period, so there is no reason to believe gold won't do the same.
Below is a weekly chart of GLD, showing a critical test of resistance. Gold has been trading in a large consolidation for the past two years, and is currently testing the top of the range. Overall, Gold refused to give up much of its rally during the vicious bear market of 2008 and has remained one of the few asset classes to do so. While overall the chart is bullish, there are some chinks in the armor. Notice the price volume bar that I circled, showing how the majority of volume has occurred at these prices. This is actually usually a sign of distribution, as an increase in volume without a price increase hints at institutional selling. However, if GLD somehow can clear this area, then it could cause a nice short squeeze as there would likely be a large contingent underwater on their trades.

Gold could easily go either way here, as there are several valid reasons to argue one side versus the other. Volume has been stronger recently as it tries to breakout, but volume is actually pretty light compared to past levels on the weekly chart. It also seems as if everyone expects a breakout, which could be interpreted as a contrarian signal. I could go on, but regardless of the ultimate outcome, the potential for a massive move exists, so it is worth betting on. The key, as with all trading, is to incorporate prudent risk management and the willingness to admit that it could go either way.

Adam Hewison of Marketclub also came out with an updated free video on gold that is worth watching.

Good Trading,


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