Do We See a Gold Correction Soon?
- Posted by TheArmoTrader
- on June 24th, 2011
Gold has been strong all year. There is no doubt about that. The dips have been bought and the pullbacks have not been steep. However, gold is technically setting up like it wants to correct soon (meaning a 10% or more pullback). The technicals are starting to look not so bullish anymore (on a daily time-frame). I won’t call it a full blown bearish setup here, but things don’t look so shiny anymore in the near-term. And with the dollar gaining strength lately, this puts selling pressure on this precious metal.
$GLD - SPDR Gold Shares daily chart
Yesterday gold saw a fake breakout over the ~151 level. Fellow blogger Robert Sinn had a solid post explaining why this failed breakout occurred. As Robert explains in his post, failed breakouts bceome one of the better short setups. I completely agree with this. Why is this so? Because all those people who bought on the breakout are now under water. They either have to double down (which is a no-no) or have to hit out their positions, which we saw happen. On top of this, the GLD lost a sloppy but decent rising trendline that was reaching its apex. Today was also the first touch of the 50sma. Even though we did put in some type of hammer candle, we did so on big selling volume which is always a concern to me. Besides all that, the RSI is starting to creep down below 50 which indicates it is losing its momentum to the upside. A close below the 50 day should indicate more selling in the near future.
$GLD - SPDR Gold Shares monthly chart
The monthly is actually what gives me more conviction for a correction. As you can see, GLD has been very strong ever since its inception. It has only had 1 major correction and that was during the deflationary period during the 2008 financial crash. Gold has been in a very nice and steady uptrend channel ever since it hit its bottom in 2008. The uptrend was confirmed in June of 2010, when after the third touch of the rising trend line it hit new all-time highs. This gives me confidence to trade off this channel since it is verified. As you can see, it has been a couple of months since we last touched the lower part of the channel (the uptrend line). Since we got rejected by the upper part of the channel in April I would think this would signal some selling in the GLD. This along with the other information and analysis that I stated gives me the conviction to call for a correction in gold. This does not mean I want to short gold. I am actually hoping for a pullback to the 138-140 area so I can buy some at the lower part of the rising monthly uptrend line.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Jerry Khachoyan is currently an undergraduate student at UCLA pursuing a degree in Political Science. He started trading in September of 2008. He concentrates on using technical analysis and reading the tape to enter the best risk/reward trades. The stock market to him is one of the greatest inventions by man.
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