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It may be slow going for the GLD ETF until strong seasonality kicks in during the month of September 2009.  That could mean that July and August are going to be flat to sideways months for the gold price and that the real fireworks will not start until September 2009.  September is the seasonally most powerful month for gold compared to any other month of the year.

In the monthly chart above of the GLD ETF you can see that during the period late 2006 and mid 2007 the gold price traded upwards on an up sloping trendline.  But for 3 months the price of gold broke under this monthly trendline support and then just drifted sideways until September when it broke out aggressively.

That was in 2006-2007, but what about now? Now we find ourselves in somewhat of a similar situation.  We see that the July monthly price bar in the GLD has broken under trendline support.  Now whether or not it just drifts sideways for 3 months like it did in 2006-2007 remains to be seen.  It certainly seems plausible that such a scenario could repeat however.

We have broad market weakness now and slow summer months trading for July and August.  That is a ripe environment for slow sideways trading with lack of real direction.

The chart above also shows two red arrows that point to 5 monthly price bars.  I pointed those out to indicate that the head and shoulders bottom formation that began in March of 2008 is still valid.  And the 5 monthly price bars on each side represent time symmetry.  A lot of the time, but not always, you will see time symmetry on each of the shoulders of the pattern.

We could see 85 on the GLD on a pullback during the next two months and the overall structure of the head and shoulders bottom would still be intact.  Are we going to hit 85? I don’t know, but on a severe broad market correction it certainly is possible.  I just think GLD is going to be dead money for July and August (sideways type action)… so more patience is required.

So for now this is the setup we are dealing with. The gold price likes to take its sweet time before it makes any big moves.  And the GLD has been consolidating for over 1 full year and several months now.  In terms of trading, that is a LONG LONG time.

The GDX gold mining ETF still looks constructive.  Now I have to be honest with you and tell you that while the gold price has been behaving well and continues to look like it wants to soon do a breathtaking breakout above 1000, I have in the back of my mind had concern about the mining stocks and wonder really whether they will be able to continue to steam higher along with the gold price.

The reason why is that gold mining is different than the pure gold price.  Yes gold mining stocks will likely be very profitable with a rising gold price above 1000 but there is this stigma and overhang with the general stock market that seems to make the gold mining sector lag the gold price. To be honest it is really frustrating, but that is just the way the market works.

Will the gold miners break free from their co dependency on the general fearful stock market and start to lead the gold price higher in a massive breakout? I simply do not have the answer to that question.

So What can be said about the GDX Right Now ?

What I can say about the the GDX ETF right now is that it is confined within an up trending channel which still looks constructive to me.  The GDX bumped its head on the 44.23 level which was resistance back in late 2007.  Since then it has been consolidating within the channel.

I did not draw this on the chart above but there is another interpretation you can make that may not seem extremely obvious from first looks.  And that is that the GDX made a significant breakout from a large head and shoulders bottoming formation that started August of 2008 and completed in April May of 2009. So we did see a nice breakout from this large head and shoulders bottom formation and now during the last 4 or 5 weeks (the chart above is a weekly chart), we have come back down to test the neckline of this large head and shoulders bottoming formation.

A retest of the neckline of a head and shoulders pattern is about as common as motherhood and apple pie. It is supposed to happen and it very often does in my experience.

So now we find that the GDX is sitting very close to up trending channel support, and also sitting close to neckline support of the large head and shoulders bottom formation.

That combination is a pretty compelling case for eventual renewed price advance pretty soon. But it is absolutely CRUCIAL that we hold the channel support here and start building higher soon.

July and August may be slow and sloppy months, but then you have September the most favorable seasonal month for the gold market coming up.  So it could very well be that the real fireworks will start in the September time frame on both the GDX and the gold price.

One last thing.  You notice that the weekly MACD looks like it is in a bearish crossover stance. That is a concern.  But also keep in mind that the monthly MACD is in a bullish stance.  We are just going to have to see how much farther down they can take the GDX.  The weekly MACD could be giving a false signal.  But we will know the answer to that once we see if trendline support holds.

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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?