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Old 08-04-2013, 02:51 AM
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matthew matthew is offline
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Default Can the Gold Bounce Gain Traction?

Last week GLD, the SPDR® Gold Shares Trust, closed right at its middle regression channel line after a three week move upward. Despite a break in resistance for the Relative Strength Comparison [RSC] with SPY, GLD still has overhead resistance at the 40 level for the Relative Strength Index [RSI].

Figure 1 provides the weekly chart for GLD as of Tuesday’s close with the three referenced technical tools and indicators.

Figure 1 GLD Weekly Chart with Regression Channel, RSI & RSC [as of Tuesday 7/30/13]

Using the 20-60 and 40-80 ranges for RSI comes from the work of Andrew Cardwell, a leading expert for the indicator. The two ranges represent bearish and bullish conditions for RSI and serves as a good subjective reminder of “what is” for the current trend. In this case, it’s the bulls that may prove themselves when considering weekly trends.

Daily View for GLD

To gain insight on any potential changes in the intermediate-term trend, traders can view the daily chart for shorter-term developments that may be signaling strength. Figure 2 provides the daily chart for GLD with the same linear regression channel & RSI settings, along with volume and simple momentum via the 14-day Rate of Change [ROC]. Here the price action has broken above resistance at the middle regression line and seems to be suspended in the upper area of the downward trending channel.

Although GLD seems to favor sideways movement right now, its placement in the channel is skewing the view making it more difficult to detect the slight decline occurring. Ordinarily the declining volume that is accompanying the move would favor a bullish resolution, but it’s more likely that the Fed announcement Wednesday and economic data Wednesday through Friday will provide us with short-term price direction.

Figure 2 GLD Daily Chart with RSI, ROC & Volume [as of Tuesday 7/30/13]

Short-term momentum has turned bullish and there is some room to go before the ROC reaches potential resistance at the 1.0 level. RSI has pulled back from the bearish extreme at 60 and is currently at its 9-day simple moving average [SMA]. The short-term bullish trend could sustain more of a pullback; however, GLD bulls would want to see price stay above the middle regression channel line, RSI remain above 50 and the 14-day ROC remain above its 7-day SMA.

More Insight from Gold & Silver Sector Stocks

XAU, the PHLX Gold & Silver Sector Index, has led GLD in weakness and its daily close has recently broken above lows set in April & May of this year. The same is true for the XAU-Gold Relative Strength Comparison line which is currently testing a trendline drawn between lows and highs since April 2013. A break up above this line would be positive for XAU and subsequently GLD on a short-term basis. Failure to break above this level may mean a test for previous lows for both.

Figure 3 provides a daily chart view for XAU and the Gold RSC.

Figure 3 Daily XAU with GLD overlay and RSC [as of Tuesday 7/30/13]

Longer-Term Perspective

In a three year period GLD climbed more than 135% before giving back some gains [10/08 – 10/11]. In less than two years, GLD dropped 32.8% to a recent monthly close of 119.11 in June 2013. With one day remaining in the month, July appears to be shaping up as an inside month with a close in the upper region of the price bar, possibly setting up a reversal for the ETF. Unfortunately declining volume and potential resistance for RSI at the 40 level may put a rebound on hold.

Figure 4 Monthly GLD with RSI & Volume [as of Tuesday 7/30/13]

If RSI ends July below 40 it will be the second consecutive month firmly in bearish range between 20 & 60. You have to go back to August 1999 for levels this low which then begs the question, “what is gold’s current secular trend?” Traders and investors alike may want to monitor charts using various intervals to keep the best perspective.

Clare White, CMT
Contributing Writer and Options Strategist ~ Your Options Education Site

Questions for Clare? Please visit the discussion board on the homepage of

There is a substantial risk of loss in trading commodity futures, options and foreign
exchange products. Past performance is not indicative of future results.
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