Over the past several weeks I’ve published a couple of Chart School newsletters in which I discussed the prospects for gold. After hitting recent highs, and then retesting those levels, it would seem that gold is just an up, up, up and away no-brainer trade. I see confirmation of this when so many of the people I coach in trading ask the question on whether or not they should go long on gold. Very rarely do I get the question about when to go short on it. It just goes to show what the present psychology is in regards to the commodity.
As always, I don’t really have an opinion on any security as much as I have a chart, and currently the chart seems very clear. I typically look at the GLD ETF to analyze gold. So, please take a look at the chart of GLD below:
As you can see, the chart is relatively clear. After the 2008 overall market sell-off in everything from stocks to commodities, the GLD has been trending nicely higher for the last year and a half. As a matter of fact, it has created one of the clearest long-term uptrend lines that you may see.
When it comes to support and/or resistance levels, always remember that the more times it has been tested, the more important it tends to be. A level that has been tested as many times as GLD, and over such a long period of time, should be very difficult to break. However, WHEN it breaks, it will be equally as important.
So, whether interested in going long or wondering when to go short, isn’t the trade relatively clear at this point?
The Tale of the Tape: The GLD has been bouncing along its up trending support for the last year and a half. This level is of extreme importance. So, if you believe gold has more room to run, then a purchase of GLD on a pullback to its support would make an excellent trading opportunity. If you were patiently looking for the right time to short gold, then the GLD breaking this uptrend line would be the time to enter that trade. Unfortunately, that could happen next week or it could take another year.
Waiting for the most opportune times that I have outlined above could provide you with the highest probability trading points. No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.
Christian Tharp, CMT