Monday, March 16, 2009

Gold - Which Way Will It Go

Gold has been relatively quiet over the last 2 weeks and I've been cautious to bearish on this metal for several reasons which I have written about in previous posts. One other reason which I haven't mentioned was that the volume on the down days has been much heavier than the volume on the up days. If you look at the above chart of GLD, you can see that since the high (February 20th) volume has been increasing significantly on the down days which is something we have not seen since this rally began several months ago. I think that's a good indication that money may be leaving this market.

Now let's be fair and take a look at why gold may rally. Gold is still in an uptrend and is holding its trend line which you can see in the above chart. The dollar is beginning to look a little heavy here which may provide a boost to gold and other commodities if the greenback does indeed sell off. I'll post later on why I think the dollar may be headed lower.

Now that I've confused you with my reasons why gold may move lower and possibly higher, I will share with you my strategy of how I plan to trade this market. In the above chart I marked off two levels which I consider important and will be watching very closely. The two levels are 92.95 and 87.47. I think a move above 92.95 will confirm that the short-term trend has turned higher and a test of last month's high is very likely. On the other hand, a move below 87.47 will confirm a clear breaking of the uptrend line and that further weakness can be expected.

So rather than guess which way gold is going to move, we'll let the market tell us and then we'll act accordingly. Hope this helps.


Anonymous said...

I will have to disagree with your volume analysis on GLD. First of all the 2/20 volume bar which is the tallest of your series of bars in your analysis occured during an up day therefore it is bullish.

Now the rest of the bars in your analysis are distribution days, no doubt about that, but to me that is normal profit taking after a big up move. What you are missing is the big picture, the fact that volume overall has been contracting as gld has been correcting down to trendline support levels. Contracting volume during retracements is bullish . So considering that gold being the only asset class still in a primary bullish trend, odds favor that the next move will be to the upside with a possible break above 1000. That is why I am bullsh and positoned accordingly at 89 with a stop below 87.

I have to place my bets at the same direction with the trend at low risk entry points with a reasonable risk management parameters and that is what buying gold at these levels means.


Jeff said...

Great analysis as always, Kevin

Thanks very much


Kevin said...

Hi Costas,

I totally disagree with what you just wrote. 2/20 was the top of the market. What I'm talking about is the volume pattern AFTER 2/20. Volume is not contracting but increasing on the down days so your statement "volume overall has been contracting as gld has been correcting down" is incorrect.

It doesn't really matter anyway wahat we think, the market is going to do what it wants to do anyway.. Thanks for reading.

Anonymous said...

I don't think you understand my point. The volume, yes it is higher on down days as you point out, but it is contracting overall. Even the volume spikes on the down days are contracting. For example
2/24 37.4 million
2/27 30.5 million
3/10 25 million have the chart above.

That to me means that the selling is drying up, therefore bullish.

Now pressuming we are still in a bullish trend then next thing to see would be an up day with a considerable spike in volume.

I would have to agree with you though that the market will do what it wants to do regardless of our opinions. If we are wrong there are always stops to manage the risk.

Keep up the good work


Kevin said...

I understand your point...we'll see what happens.

Anonymous said...

With GLD closing 10c above your 92.95 level, after making a huge reversal having gone below the 87.47, do you think the reaction is one off due to FED statement? I would be interested in getting your comments on this move.

While othr bloggers tend to push their view you seem to accept the fact that your view may be proved wrong by market action, and hence your approach is one of caution than of shoving it down.


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