Two Chart Patterns and Overhead Resistance in GLD

Sep 16, 2009: 2:47 PM CST

Let’s take a quick look at the weekly chart of GLD (Gold ETF) to note a clean path to new highs assuming we solidly break the $100.00 resistance level at which price rests currently.

I’ve mentioned the two ‘competing’ (or complementary) patterns in Gold in various posts, but let’s take an updated look.

First, we have the Inverse Head and Shoulders (black) which shows a roughly symmetrical (not so much on the right shoulder) pattern that has found the neckline – surprise – at the $100 level (which corresponds with $1,000 per ounce in gold prices).

To project a price target from this pattern, we take the distance from the neckline ($100) to the bottom (inverse top) of the head ($70), for a measure of $30, which is then added to the “neckline” at $100 to give us a possible upward target of $130 in GLD (which is $1,300 in Gold).

That’s a very bullish projection.

A more neutral projection comes from the Blue Triangle Pattern to the right of the chart.

To project upward from a triangle, we take the height of the triangle (an estimate of $80 to $100 yields a $20 height) and then add that up or down to the breakout zone – which if price continues an upward break, would be $95 (breakout price) plus $20 = $115.

We can have some confidence in the triangle pattern because volume (and momentum) contracted during the formation of the price consolidation, which is expected from classic technical analysis.  We also had a volume surge on the breakout bars of the last two weeks.

The 2008 price high in GLD is $100.44, so a break above that level would take out some short-sellers and draw in fresh new buyers, which would likely create an upward burst as a result.

Right now, price is at a clean “technical decision node,” in that we could have an inflection up or down either way – but it’s likely to cause a burst in price.  Should price break to the upside, we’d have a burst up for the reasons mentioned above.

Should price break down, we’d likely get a burst down as weak (shaky) new longs (buyers) would panic out and then shorts (betting on $100 as being resistance) would pounce on any price weakness, which would lead to more stop-losses (of the buyers) being taken out.

For now – akin to the logic of Mark Douglas in Trading in the Zone – let’s see how price reacts at the current $100 ‘node’ and then try to participate with the winning side in the battle for supply and demand (which ultimately moves prices).

Corey Rosenbloom, CMT
Afraid to Trade.com

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

6 Comments

6 Responses to “Two Chart Patterns and Overhead Resistance in GLD”

  1. Bob Says:

    I was surprised to see gold lead the break in the markets. Kind of expected the US dollar would break down first and gold would follow.

  2. billfitzpatrick Says:

    your head and shoulders looks like a penis and testicles. Just thought i'd throw that one out there

  3. Corey Rosenbloom, CMT Says:

    Hey Bob!

    Same here – the break in gold was expected (in either direction… in terms of a price expansion move) but the break down in the dollar came slightly later. Strange.

    Oil is a bit more correlated to the dollar than gold is at the moment, as there are a variety of forces pulling and pushing on gold prices.

  4. brandtrader Says:

    “O” please….it's GLD to the moon!!!!

  5. Corey Rosenbloom, CMT Says:

    Hey Bob!

    Same here – the break in gold was expected (in either direction… in terms of a price expansion move) but the break down in the dollar came slightly later. Strange.

    Oil is a bit more correlated to the dollar than gold is at the moment, as there are a variety of forces pulling and pushing on gold prices.

  6. brandtrader Says:

    “O” please….it's GLD to the moon!!!!