Thursday, May 6, 2010

The Technical Take: GLD

Figure 1 is a monthly chart of the SPDR Gold Trust (symbol: GLD).

Figure 1. GLD/ monthly

The price bars marked in pink represent negative divergence bars. In this instance, the divergence is between an oscillator that measures price and price itself. As I have pointed out on numerous occasions, negative divergences imply slowing upside price momentum. Often times prices will remain within the range of the highs and lows of the negative divergence bar before "breaking out". The presence of negative divergence bars only implies a trading range as opposed to a directional bet. To understand this last statement, please see my recent article on the Brazilian Bovespa where I have been stating since February that Brazil is "dead money" because of the presence of negative divergence bars, but it becomes a bear market on a close (or break down) below these levels. Please note the distinction.

In any case, the breakout (blue arrows on chart) back in September, 2009 (that was chronicled here) was significant in my opinion as it was over a base of significance (i.e., multiple negative divergence bars). Prices moved higher for the next several months and reversed quickly leaving the most recent negative divergence bar (December, 2009). In my January 4, 2010 article on GLD I stated:

"The presence of the negative divergence bar (i.e., the price bars in pink) on the monthly chart implies a trading range. The low of the current negative divergence bar comes in at $105, and coincidentally, this corresponds to the bottom of the trend channel drawn from the November, 2008 lows....I would not be surprised to see GLD retest this area."

GLD did retest the 105 area and never closed below the lows of the negative divergence bar. Now prices on GLD are marching back towards the highs of the negative divergence bar. We can come up with all sorts of reasons why gold is on the move including: 1) safe haven; 2) currency devaluation; 3) currency of last resort; 4) geo-political tensions; 5) inflationary pressures. These are all well known and exist whether gold goes higher or lower.

So here is my point: 1) I am not sure what GLD is going to do here; 2) prices are nearing the top of the trading range as defined by the high of the negative divergence bar on the weekly chart; this comes in at 119.54; 3) a monthly close over the highs of the negative divergence bar on GLD (at 119.54) suggests much higher prices for GLD. We shall see if GLD has enough "juice" to go higher. On that matter, I don't have an opinion, but I do expect GLD to trade to the highs of the monthly negative divergence bar.

Lastly, I bring up and highlight my past trading "calls" not to show you that I am right (although having good credibility is always better than bad "cred"), but really to point out the consistency within my analysis. It is the same story over and over again regardless of the asset I am looking at. This is the message in my work.

The ARL Advisers Real Time Portfolio has had a position in GLD since mid- March, 2010.


Anonymous said...


Fu Manchu said...

Guy, you kicked ass today!

Guy M. Lerner said...


Guy M. Lerner said...

There are issues still in my is never short the YEN trade got clocked today; yet that is ok as it is trading but what irks me (and I have expressed this before) is that I made a good call on the direction of the dollar (back in Jan, 2010) and I was unable to capitalize on it to the extent that I would have liked

But I will take the good today and keep moving on