Gold

It was a quiet day today in the Gold Market.  The gold price as represented by the GLD ETF did not manage to make much of any statement today.  Indeed the volume was also very light and similar to last Friday’s light volume.

Now here is the dilemma. Are we going to break down or break out in Gold ?  The key for me anyway is the March 6th swing high of 92.95.  We need to get over there with some conviction.  So the question is how soon can such a thing occur if at all?  Right now it may be too tough to call.  I think we will see a big move coming out of this recent 2 week consolidation but for me it is too early to say it will be to the upside.

There are a few different crosscurrents right now.  For starters I could make the interpretation that this declining volume is a bullish development, especially the speed with which it has declined.  One could make the interpretation that the especially light volume today is an indication of last remaining sellers being squeezed out.

Then we also have what looks to be a possible 3 rising valleys pattern as shown on the chart to the left (drawn in red).  Now the 3rd valley seems to be forming now and the whole pattern would be confirmed on a breakout with confirmed volume above the peak of the 3rd valley.

This last valley that has formed is also characteristic of a final small handle of sellers from the original old high of March 17th, 2008.  Certainly it was to be expected that we get some sort of residual selling from left over sellers in that area.  Again, the declining volume trend on this handles formation is quite bullish.  I have seen handles like this in the past that also had such a dramatic drop in volume initiate a breakout with high volume seemingly out of nowhere.

Also bullish at the moment is that we continue to trade and hold above the 50 day simple moving average.  The 50 day moving average remains in a bullish stance above the 200 day moving average.  We are also holding support of 900 in the price of gold so far at least.  The low volume characteristic we have seen in recent days seems to suggest we will continue to hold this 900 support.

If we are able to get some upside tomorrow it would certainly be interesting to see what happens to price on a move above the March 6th swing high. It may trigger a short covering panic and cause a quick acceleration in price.

Downside possibilities could be the 85 area on the GLD or near the 200 day moving average.

So for now we will just have to wait and see what the gold price tells us.  I have to say my bias is to the upside, but do not have enough conviction yet based on this setup.  It is also worth noting that the next upwards advance in the price of gold is likely to take out the all time highs.  I do not see another consolidation at the 1030 level again.  It is time for gold to face the music.  It has been given 3 chances now to overtake this all time high, and I would say now is about the best chance it has as any.  Assuming a move into the all time high, there should be significant follow through buying just based on that technical event alone.

One last point that is interesting, tomorrow is March 17th, 2009.  That is exactly one full year from the previous exact peak that occurred in the gold price on March 17th, 2008. Significance? Don’t know, we shall find out tomorrow…

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The GLD ETF is once again at a crucial juncture.  I have to say right off the bat that I believe the GLD is behaving extremely well. I mean how many other sectors do you know of right now out there in this market that are behaving ‘technically well’ ?  There just are not that many to be seen.

GLD is holding supports properly and also has respectable advancing volume versus declining volume relationships that are second to none.  In addition today we bounced (so far anyway 1PM eastern time) back up above the 50 day simple moving average.  The 50 day is currently above the 200 day as well having previously achieved a golden cross (50 day moving average crossing above 200 day moving average) a few weeks ago.

Now if all that bullish information was not enough for you hold onto your seats because I have even more… I have noticed that the GLD ETF has a ‘three rising valleys’ trading pattern.  I have drawn up a chart below and labeled the three valleys 1,2 and 3.  This is a pretty reliable pattern and it has measurement implications for the GLD to about 120.  Just looking at that pattern you get this sense that the price of gold is trying to get a running jump start (like a pole vault champion) to achieve its breakout of the all time high.

The 100 level is a KEY level as I write on the chart to the left because it represents not only the all time previous high (or very close to it at least) but it also represents the activation level of this pattern to make it valid. If we take out the high at 100 then it is saying we should have a really substantial move that makes new all time highs. Why? Because in order to make a breakout of this magnitude valid we need to see a very substantial sign of strength with enough price bar spread and volume to confirm it, otherwise it would be invalid.

The nature of this most recent correction in the GLD has been fascinating.  It has so far been very fast and sharp.  But lets think about this for a second, imagine you are the price of gold and you want to try to trick as many people as possible. How are you going to do it?  Well certainly right near an old all time high you would do a very brutal and fast price correction that scares a lot of people out of the market. Secondly, you would then probably recover back up to the old all time high almost as fast as you went down, and then third you would break out even faster than that so no one has a chance to get on board! Brilliant!

It just seems that it is the nature of the gold market to trick people as much as possible. It is like a bucking bronco trying to shake as many people off before the real move gets going.

One last point that I have been thinking about as well that makes the above scenario legit is that we have less and less resistance on the left side of the chart.  What that means in plain English is that the gold price should be able to move faster and complete corrections faster than it normally would. Make sense?

The gold GLD ETF is once again at a crucial juncture!  By the way is it ever not at a crucial juncture?

The recent decline we have seen over the last 8 days or so has been sharp and fast and may leave many wondering, “is gold done for now?”.  I do not believe this to be the case.  I also do not believe that we have formed a double top in gold as some have talked about.

Instead what I am seeing right now on the gold GLD ETF is a normal 50% retracement of the very sharp rally that began on January 15th, 2009.  There is no question that the rally that began then was strong persistent and covered a good amount of ground.  A retracement definitely was to be expected although I am a little surprised how fast and deep it was to be honest.

But here are two key points with respect to where we are right now in this correction.  GLD has pulled back to it’s 50 day simple moving average which should act as support.  We already know that GLD did achieve a golden cross (50 day moving average crossing over the 200 day moving average). So these two facts are already quite bullish for gold.  By the way how many other indices, stocks or commodities can brag about having accomplished the coveted golden cross now a days??? Not too many.  All the more reason to give the benefit of the doubt to the bulls on GLD.

The second bullish factor that has come into play with the GLD is the volume analysis.  If you look at the chart above you can see that today’s decline was on roughly 19 million shares, but it is important to compare this declining volume to the advancing volume we saw previously and at similar levels.  So we compare it to that 34 million share day price swing.  That my friends is a reduction of 44 percent which is quite bullish in my opinion.  It is hinting that GLD which anyway is at good support at the 90 level does not have the downside energy to keep falling.  We should expect a sharp reaction back to the upside and if we are lucky a price smoothing that holds the 50 day moving average.

This may be one of the most fascinating chart comparisons I have ever seen.  The weekly gold price chart seems to be following the pattern of the 30 year bond when it had it’s enormous breakout leg last year.

A picture is worth a thousand words and I am going to show you two charts here. One is the weekly gold price chart and then the second is the 30 year treasury bond chart.

First we have here to the left the weekly gold price chart.  As you can see on the chart the gold price has attempted 4 separate times to break out of the down trend resistance line.  On the fourth try it was successful and I also have confirmed that the breakout was on confirmed volume as least as represented by the GLD gold ETF.  After the gold price broke out it did what most normal markets do and pull back to do a classic test of new support level.  We are almost just about done with that right now on the weekly gold price chart.  Ok so now let us take a look at the 30 year bond chart and you can see a similar type price setup and then the resolution.

As you can see if you look carefully at the daily chart of the long bond it also attempted four separate times to break out north of the resistance line. It was successful on the fourth try and it too did the classic retest of the new support level. But what is key about this chart is how the price reacted afterwards.  As you can see it moved very fast in almost a vertical fashion to create the huge breakout of the previous high.

I think the gold price has a decent shot at repeating this type of pattern and we should be able to look forward to near vertical price movement on the weekly chart pretty soon, perhaps starting as early as next week.

GoldCorp and many other major mining stocks did a powerful reversal today.  Today may have marked the end of this decline phase that started about a week and a half ago.  Gold mining stocks in my opinion remain still very undervalued relative to the price of gold.

We have seen the gold price get very close to new all time highs and yet the major mining stocks have languished well below their highs. But is all this going to change very soon? I think they have a decent shot at it.  And in fact what we could see going forward from today is that the major gold mining stocks once again take the lead to the upside.  Perhaps this would occur in the environment of a slightly recovering broad market.

Since 17th of December of 2008 we have seen many of the major gold mining stocks essentially ‘put to sleep’.  They have traded in a long sideways pattern for a little bit more than 2 months.  That is not necessarily a bad thing however.  After the big move that we saw in GoldCorp from the panic sell off lows in November 2008, it is only reasonable to assume that this equity needs to catch it’s breath and build some more valuable cause for the next sustained impulse leg to the upside.

Today was indeed a key day for GoldCorp in my opinion because we could have closed at the lows today and that would have forewarned that the correction in the gold mining stocks would continue and go deeper.  But instead we saw GoldCorp take a peek at those low levels and then do a very sharp reversal.  Since GoldCorp for the most part follows the GDX gold mining stock index, we did see similar action in the GDX ETF.

Take a look at this chart of GoldCorp.  You can see that it appears to have built what looks like a very large ascending triangle pattern. 

The supply line is roughly at the 33 level and it has been already hit several times. In addition if you look closely you can see that since the December 17th peak there appears to be the pattern formation of a head and shoulders bottom.  This pattern could soon be confirmed on a resumption back up to the 33 level and then subsequent breakout.  The measurement target of that head and shoulders bottom is about 40 level.

There is actually a much larger head and shoulders bottom formation which has measurement implications to 50 for GoldCorp.  On the GDX a similar pattern exists and measures to 54 range.

I think we may start to see the gold stocks catch fire again soon and start to lead the gold price. Stay tuned.

The GLD Gold ETF is sitting on critical support similar to the way the GDX ETF is in my previous posting.

We need to see the gold price hold support here.  The GLD has broken out and above the long resistance line shown in the chart on confirmed valid volume.  One of the most common things you will see on any stock price chart is the return of price to previous resistance.

In this case the breakout was at about 90.93 on the GLD ETF and now we see clearly that price has retraced right back to this support. and volume has dropped off on the decline although it is a bit heavier than normal.  So again, price returning back to resistance line is quite normal price action and should have been expected given the old owners near the 100 level on the GLD.

A theory I have been postulating on the nature of this run in GLD is that price will move faster than it has before the higher above 90 we are. The reasoning for this is that we have less and less resistance on the left side of the chart. This correction we have been in the last several days has been sharp and swift. Could we expect a sharp and swift reaction back to the upside that quickly tests 100 level again? It is possible.  And the reason it is possible is because there is less resistance on the left side of the chart.

If you look at the shaded orange area in the chart above you can see how little price there is to hold us back. And of course above 100 there is zero price holding us back.

It is going to be interesting to see how GLD holds up on this new support now.  Breaking down below 90 would not be a good sign at all.

But for now there are enough positive signals to suggest that we will hold here.

 
The GDX ETF (Gold Mining ETF) is at a crucial juncture right now. For the past 7 or 8 months the GDX has built what appears to be a very large head and shoulders bottom formation.  In late January you can see from the above chart that the price on the GDX was able to break out of the pattern (above the neckline) on high volume and a sign of strength.  The breakout is represented by the first closing green bar that is above the neckline in the chart above.

Since the breakout the GDX has had a somewhat modest rally which was going against a generally very negative broad market.  Now the broad market is breaking down again and it seems the GDX mining index is unable to buck the trend this time.

Today it pulled right back to the neckline support at 31.09.  This is a critical area.  Pullbacks to support like this and especially the neckline of a large pattern like this is key.  Ideally we want to see GDX hold support here and move sideways to slightly down.

Relative Strength RSI(14) has move to a reasonable 40 level right now.

Also key to note is that volume has contracted on this pullback to the neckline.

So again, we want to see GDX hold support here as a sign that the uptrend is still intact and we can start the next leg up.  Now what we want and what actually happens is a different matter.

Let us see how it holds up in the next few days.