Gold at Resistance – Watch Closely

Nov 14, 2008: 12:03 PM CST

Gold prices are testing major resistance, but have a positive momentum divergence building beneath the action – let’s see these developments – using the Gold Trust ETF (GLD) as a proxy.

GLD (Gold Trust ETF) Daily:

Before viewing the chart, keep in mind that StockCharts represents the gold price index ($GOLD) with end-of-day data only, so to get the most recent intraday data – or for a vehicle to trade your views on gold prices without using futures – you can trade GLD and receive intraday updates as well if you don’t have access to futures data otherwise.

That being said, price is clearly in a daily downtrend, as price has made a series of lower lows and lower highs in terms of the swing ‘structure’ of the market.  We’re now coming off a recent swing low – or one could reasonably argue that a ‘double bottom’ formation may have occurred about the $68 ETF price level (or the $700 per ounce level in gold prices itself).

As such, a clear positive momentum divergence has formed, which is often a precursor to potential reversals as evidenced by comparing the recent price lows to corresponding indicator lows.

Price formed a bullish ‘hammer-like’ candle pattern on Thursday as the market reversed and the ETF gapped up this morning and is currently forming a doji at technical resistance via the falling 20 day EMA.  At the time of this writing, December mini-gold futures (@YGZ08 in TradeStation) are trading near $750 per ounce, which is just shy of the 20 day EMA at roughly $753 per ounce.

Price sits at a critical junction with a decent chance of breaking above EMA resistance and challening perhaps the 50 day EMA (at roughly $790 per ounce in the futures or $78 in GLD).

The overall trend is still down, so we need to take that into account if we’re looking to position for a swing or perhaps even scalp-style trade here.  A failure at these levels with the potential double-bottom and positive divergence would be particularly damaging to the gold bulls, particularly if price swings back to take out the $70 GLD level or $700 per ounce level in gold.  All bullish bets would be temporarily off the table were that to happen.

Let’s watch price at these levels extremely closely and look for continued signs of strength… or resurgence of price weakness via EMA resistance.

4 Comments

4 Responses to “Gold at Resistance – Watch Closely”

  1. todd Says:

    Hi Corey,
    Quick question; Do you load your charts to include 24-hour data rather than “Regular Session” when trading??

  2. Corey Rosenbloom Says:

    Todd,

    With TradeStation, I view continuous futures data, which creates different structures (in terms of indicators and EMAs) but I compare it to the GLD as well as have a separately designed chart that corresponds to the stock market times. I don’t trade in the overnight session, but find the gold market making good swings earlier than the NY open at 9:30 (sometimes as early as 7:30 EST or so).

    It does alter the charts to display 24-hr data, but I think it’s quite important to see.

    What are your thoughts?

  3. todd Says:

    My apologies for not being specific. I wasn’t necessarily speaking of Gold/GLD. I was speaking more in general terms. Personally, I don’t subscribe to futures data (yet, anticipate doing so at the start of ’09). I also don’t trade pre-market, but the feel of the 3/10 MacD using 24-hour data (in Tradestation) with active issues seems to give valuable clues to where the open of the market is headed, at least in the first quarter of the day.
    thanks Corey!
    -todd

  4. Corey Rosenbloom Says:

    Todd,

    It does give some extra insight but for however long your parameter on your indicator is, it can ‘mess up’ the reading by including overnight data. It’s good to see if there was anything interesting overnight, or to see what the “Globex” highs and lows were as those levels can be magnets during the actual trading day. Otherwise, most futures contracts are thinly traded overnight. It can give some clues on the type of day forming (early) or the basic structure at times.