Wednesday, February 16, 2011

GLD: Making A Bottom

The SPDR Gold Trust (symbol: GLD) is making an intermediate bottom making support and stop loss levels easily identifiable.

Figure 1 is a daily chart of the GLD.  The yellow (and sometimes red and yellow) dots on the price charts represent key pivot points.  Key pivot points represent the most intense zones of buying (support) and selling (resistance).  A "typical" bottoming pattern would be for GLD (and most assets) to trade below a key pivot point or support level taking out stops and then reversing higher.  Recent price action has GLD trading below the key pivot at 133.51.  Old support now becomes new resistance.  Prices then found a bottom near the next level of support at 129.64.  Prices pivoted higher and are now trading back above the nearest key pivot or resistance zone at 133.51.  This "typical" price pattern was seen throughout all of 2010, and is noted on the chart by the shaded rectangles labeled 1 through 3.  This is a common bottoming pattern.

Figure 1. GLD/ daily

More importantly, the key pivot at 129.12 (labeled with black arrow) really becomes our "line in the sand".  Trade below this level implies a much deeper correction, and this would be reason enough to move to the sidelines.     

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