Gold Is Ripe For A Nasty Correction
- Posted by TheArmoTrader
- on September 16th, 2011
Gold has had a very nice run over the past (insert time-frame here). But, based on some technicals, that run, at least for the intermediate term is over. The technicals point to a possible bearish correction soon. One that would send gold down to levels not seen in…. months! Even putting the technicals aside, the Swiss-Franc is telling us Gold is going NOWHERE. Yes, I get the story fundamentally, but like I say, “By itself, fundamentals are not a catalyst”.
$GC_F – Gold Futures Daily Chart
Here’s the potential scenario. It is very simple. There is a possible double top (not a double top till support breaks). If it breaks 1705, its game over for gold. That would mark an official double top. Gold will see a fast and hard correction. The measured move target would be $1,493.
As you can see also, the RSI has been weakening and is now below 50 (the midpoint inflection), signaling a potential turn of momentum. The measured move sell-off will also put gold near its 200 day SMA, something it has not touched since early 2009. One last important thing to note is the volume. Huge selling volume came in as gold put in this potential double top. While this may not mark the end for gold, it can mark a potential pause.
$GLD – SPDR Gold Shares Monthly Chart
However, looking at the longer term chart, you see gold was in a very nice up-trending channel until it broke out not too long ago. The measured sell-off would put $GLD near the lower up-trending line. In my opinion, this would be a very good spot to buy gold (barring unseen circumstances) if you are bullish on it. One last thing that caught my eye was the MASSIVE volume bar gold saw last month. While I like paying attention to the futures contract more so than the ETF, it is still important to note that. Since the ETF tracks only intraday volume, it is pretty impressive to see such a big volume bar like that (which is more than double the previous volume bar). GLD is also potential putting a ‘tweezer top’ pattern as well, a pattern which I have seen work very well on both the short and long side.
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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