While stock spectators are quietly being lulled to sleep, commodities are beginning to awake. Oil has already been gushing (Tomahawk missiles in the Middle East will do that), but it looks like gold prices are looking to get in on the action. The SPDR Gold Trust (ETF) (NYSEARCA:GLD) is popping on Tuesday in a breakout bid that has potential.
Let’s break down this GLD setup and build a trade idea.
In contrast to the lackluster start for equities, gold has cobbled together a solid start to 2017. Year-to-date, the GLD ETF is up 10%. Not bad for an asset that investors left for dead at the end of last year.
The ascent was sufficient in turning both the 20- and 50-day moving averages higher. With the short and intermediate-term trends now pointing northward, there’s no doubt buyers have wrested control for now.
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The long-term trend, on the other hand, remains as neutral as ever. Indeed, the 200-day moving average is flatter than a pancake, suggesting the larger trend for gold prices remains contested. Nonetheless, GLD bulls deserve the benefit of the doubt here on account of their recent victories.
The price pattern catching my eye is a cup-and-handle nestled just beneath the 200-day MA. The past two weeks of churn created the handle or high base of the pattern, and with today’s up-gap, it appears the yellow metal is ready to rock. A close above $120.67 would help complete and confirm today’s breakout attempt.
The GLD Trade
If the path of least resistance is indeed higher for gold prices, then selling put spreads should deliver the goods this month. Sell the May $117/$114 bull put spread for 50 cents. Consider it a bet that the GLD ETF will sit above $117 at May expiration. If it does, then you will capture the 50-cent reward.
The max risk is limited to the distance between strikes minus the initial credit, or $2.50, and will be lost if GLD sits below $114 at expiration.
As of this writing, Tyler Craig owned bull put spreads in GLD.
