I thought today we’d have a look at gold via the SPDR Gold Shares ETF (NYSEARCA:GLD) because over the past year and a half, gold hasn’t really been too kind to the bulls and has been frustrating for the bears because it hasn’t done anything.
From a longer-term point of view, we have gold in an uptrend but more and more that uptrend is looking like it’s potentially going to break. Remember that tops in markets aren’t points but rather processes, so what you have is essentially a multi-year move up, followed by what has been sideways trading for some time. Eventually, if GLD were to break below $148 to $149 on a weekly basis, it probably would have broken its entire uptrend/sideways movement and gone into a more meaningful correction period.
If we look a little closer up at GLD’s chart, I’d like to discuss an opportunity to potentially trade the stock on the long side because it seems to be holding $148/$149 and, as such, there may be an opportunity. In the video, I look at GLD’s chart closer up.
I have drawn the 200-day simple moving average, which is the red line on the chart in the video. It’s held very well until the market in gold started to get a little more corrective and choppy. As such, at the moment the 200-day moving average in GLD isn’t a huge line in the sand. It is, however, acting as something that could be traded from a mean-reversion perspective.
Looking at GLD’s chart even more closely up – and this is where the trade comes into play – what I’m currently looking at is, if considering that the broader market in equities were to correct a little bit at some point over the next few weeks, the-near-term correlation between equities and gold tends to be quite inverse. I’m saying “inverse” here because over the course of more than a couple weeks, the correlation isn’t as cleanly inverse.
To me, a first sign of a potential trade to the long side in gold – i.e. a drop in equities, or at least a correction in equities – would be if the GLD were to get above around $156.50. So, a very simple horizontal line that if GLD were to get past $156.50, it would be able to move a little bit higher at least, closing a gap that dates back to the beginning of February. That should get the GLD moving, more or less, towards $159.
At that point, we are also getting into a downtrend that dates back to the October highs and where I would expect if GLD were to fill the gap, it would, more or less, get to just about the downtrend. Any move above this downtrend should be able to get the GLD into the low $160s at the very least, which would get it back into the price consolidation zone where it was in December and January.
Again, the premise for this trade is that the inverse correlation between gold and equities tends to be quite inverse in the near term. So, as equities get smacked, people flee to the safe havens for the near term, so you should have a pretty good bid in gold on the back of that technically above $156.50 should move higher and fill the gap from February. That should eventually lead past this resistance line into the low $160s.