Monday, March 30, 2009

Gold Closes Below Its Trendline



Above is a chart of GLD and as you can see the market closed below its uptrend line for the first time since November. One little helpful observation I've made over the years is that a single close below a trendline is not enough evidence to consider that a breaking of the uptrend. However if we see 2 or 3 closes below a significant trendline, odds are that the trend has changed.

So lets keep a close eye on what gold does over the next few days. Will gold move back above its trendline? Was today's close the first hint that gold is about to make a change of trend? As always, we'll let the market tell us what it wants to do so let's be patient and listen to what gold tells us over the next few days..

7 comments:

Trader Dan said...

Hey,

Good post. I like your approach of letting the market tell you what to do rather than predicting what it will do.


-Danny

Mr. Monopoly said...

What do you think about the relative merits of arithmetic and log scale charts? Your chart is on arithmetic scale. On my log scale chart, we've now had 4 consecutive closes below the trendline.

Kevin said...

Excellent question Mr. Monopoly. In my experience I've found trendlines drawn on log charts to be more accurate, especially when viewing weekly and monthly charts. You are right, we do have 4 closes below the trendline on the log chart which would indicate that gold's uptrend has been broken. My bad for not using the log charts this time.

Mr. Monopoly said...

After I posted my comment I googled the question, and learned that arithmetic scale charts are measuring velocity while log scale charts are measuring acceleration. A subtle but important difference! Most "experts" seem to think arithmetic scale is best for time scales of 3 years or less, but apparently institutional investors prefer log scale in all time frames.

Gary said...

Of course gold could be just consolidating after the huge move up from $680. I think it's going to be tough to push gold back below the 75 week moving average and even tougher to push it below the 1980 highs of $850.

Precious metals are still the only bull market left standing...well other than bonds which are being helped along by the Fed's printing press.

Anonymous said...

A break of a trendline is not as conclusive of a pattern. It does not always imply a change in trend.
The price can simply form another uptrend with a different trajectory.

A more reliable pattern that I would be watchfull on GLD is a potential H&S top with the neckline at 87. If that gets penetrated on above average volume, then I have to say the trend has changed at least on the intermediate term.



Another thing that I am watching on Gld is the volume pattern which has change now. Volume is expanding on up days and contracting on down days and that is bullish so far. This pattern though has not lived long enough and any acceleration in volume from here with a decline in price would negate it. Bulls and bears are fighting very hard over this one.


The aproach I am taking on this one is wait and see untill something happens. That someting could be the test of the neckline on light volume (less than 12 million shares), I would view it as bullish enough to trigger a long trade with a stop underneath it.

Costas

Anonymous said...

I know you running a technical site but to me I will like to have the fundamentals in the back of my minds as well. If they both confirm each other I have a much more confident trade.

http://seekingalpha.com/article/128150-nyse-runs-out-of-gold-bars-what-happens-next

Costas

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