A Look at Gold/GLD

I always like to take a look at gold in front of an F_O_M_C_ meeting, it has been and can be one of the assets that drops a big hint in front of the meetings.

I remember a little over a year ago, I was in touch with a newsletter writer who also managed a fund, a few of you know who he is, his initials are B.C.

In any case, for a long time Gold had been like the "No Duh!" trade that everyone was buying, this fellow wanted to see what I was all about and I told him Gold's trend is in trouble, if I had profits I'd be a seller.

At that point you were a goldbug or you weren't, if you were, how dare anyone say anything contrary to "Gold is great!", after all over the last several years you probably made a small fortune, so I got a dismissive email more or less and never really thought about it again, but a year or so down the road and the situation has a totally different perspective.

 For years GLD's obvious trade was buying it at the 150 day moving average as yo can see by the white arrows, we were looking to buy GLD in late 2011 on the next pullback to the 150 (yellow arrow), but after seeing how it ran up in volatile fashion, I didn't like what I saw and we waved the long trade off, not long after the 150 m.a. that had held for years broke and quite a few people got run out of the trade. This was around the time I was telling this guy that I wasn't big on GLD at the time, it had put in at least an +80% return since the trend until just before it got very volatile and since it has returned about 5% long over the last year and a half, that's what I call "dead money" and open market risk.

 I could see the volatility that was a definitive change in character and you probably can too, but just in case, I put a linear regression channel on the trend and you can see the upside channel buster.

I know a break out of the channel looks strong, but more often than not after a trend this long, it's a sign of the volatility associated with a top or the end of a trend so while most people are excited to see their asset fly, if they don't take profits in to the strength, they're likely to take a decent loss as changes in character (even seemingly bullish ones) lead to changes in trends.

 Whenever you have a big triangle like this after an extended uptrend it is a top 90% of the time or after a downtrend it is a bottom, they are way too big to be consolidation patterns, although many technical traders still look at them as such so if you were looking at it that way then you were expecting a breakout to the upside starting the next leg of the trend up. Instead, GLD broke down below the triangle, I can't recall if we bought it there for a long trade knowing it was a head fake move, but I know for sure we shorted the next breakout to the upside with puts and made something like +211% in about 3 days as GLD made one of the biggest 1-day moves to the downside in its history-now you have a true "Crazy Ivan shakeout". The problem has been GLD just hasn't done much so the way I see it is as a swing or options trade until it proves different.

 The daily 3C chart is pretty much in line with the uptrend at the green arrow, we saw the first significant daily negative divergence at the red arrow where 3C should have been up around the yellow hash mark, this was one of many signals telling us not to be a long term buyer. The current signal is within a small leading negative divergence, but this is a very long term daily chart.

 A 30 min chart is more manageable for near term trade, the red boxes are the kinds of trades I'd like to hit in GLD with some leverage, it looks like we have a positive divergence and trade building so I'll keep the open long GLD open a bit longer, but I'd like to see a pullback and some better signals, then it may be worth a shot with options.

 The 15 min chart tells the story pretty clearly and tells us the current position looks pretty good, still that gap can be filled and would almost certainly be an opportunity.

The short term 3 min chart looks like a pullback in to the gap is not out of the question, so we'll keep an eye out for that, if the charts still look good like that 15 min, it may be worth a longer options trade or a swing trade, perhaps a leveraged gold ETF.

In any case, as far as the F-O_M_C goes, I don't see anything standing out. As far as that old trader goes, I wonder what his position is in gold now? Some of you might know, send me an email.