A Look Inside Gold and GLD Daily Triangle Break

Sep 3, 2009: 11:55 AM CST

There’s been a flurry of activity in regards to the recent internal triangle breakout of gold from its lengthy triangle consolidation pattern.  Let’s take a quick look at this pattern and what might be in store.

First, the standard daily chart of $GOLD Index (from Wednesday’s closing price):

The index broke the internal triangle that has been the dominant pattern, though there are two levels to watch to see if buyers can overcome prior price resistance both at the $990 and critically important $1,000 level.

A break above $1,025 clears any overhead resistance and lays bare a pathway to the $1,100 level if not beyond, particularly if the “inverse head and shoulders” pattern is dominant above the triangle here.

One theme is the contraction in the 3/10 Momentum Oscillator, which just highlights the absolute price compression (“value area”) that formed since 2009 began.

Next, a zoomed in view of just the index price since mid-2007:

There is an internal triangle and an external triangle.

The Internal Triangle is that which is shown on the prior chart, which began at the 2009 lows and highs and compressed until present.  The internal triangle is broken to the upside.

The External Triangle began with the 2008 highs to the 2008  lows – it is NOT broken yet but a momentum move might force a break of the external triangle, which would be a very significant chart (technical) development that will likely splash headlines across the world… creating a possible buying frenzy that marks range expansion moves, particularly over key boundaries.

You can see the intense compression in the momentum oscillator here.

Pulling the perspective back tempers the excitement level, and shows that the bulls still have room to prove themselves – namely from prior price highs.

Finally, a daily view at GLD, the popular ETF most people use to trade gold:

Wednesday’s action brought a volume surge in GLD (27 million shares) which is common with price breaks from consolidation.  Those with short positions are forced to cover as their stop-losses are hit, and those who are already long might be adding to positions, while those on the sidelines aggressively jumped in to chase momentum as price broke the $95 level on a gap.

It’s common to see gaps expand out of consolidation moves, which force people to jump on board for fear of being left behind.

The day is halfway over (I captured this chart at 12:30 EST on Thursday afternoon) and volume is already running at a higher than normal pace as seen from the prior volume bars.

Scalp targets would certainly be prior price highs, though aggressive traders might find swing or even position trades irresistible here.  That’s fine, but don’t let your bullish sentiment run ahead of you.

Watch how price responds to prior price highs (is volume picking up as they are challenged or are there internal divergences and less volume at these highs?) and look for any non-confirmations on the way up.

Otherwise, this could be the move the bulls have been saying was “imminent.”

Looking at it from all angles, any downward move from here would trigger massive stop-losses (as people are basically clamoring over themselves to get long GLD) and deeply frustrate the bulls, so be aware of that possibility should it occur.  Always have your “If/Then” possibilities ready!

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

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Comments
  • Great charts, I'd also check out relationship between GVZ (GLD option demand) and GLD. This spike in GVZ over past few days leads me to believe that being a call buyer in GLD doesn't make sense, and fading the move should be considered a possibility. See the chart at bottom of post: http://bit.ly/goldVol

  • Thanks Steven! Great to hear from you!

    I definitely need to look closer at options activity in key ETFs to discern any hidden signals or signs of participation. I had not heard of the GVZ yet but will certainly do so. Excellent post of yours by the way. Thanks!

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