GLD Update

This is why I decided to go with April Calls with GLD, in case it was a short term move to the upside we'd still make money, but if it were a larger base forming (which can support a much bigger move), we wouldn't be stopped out of the position or run out of time, the GLD position went from being down probably somewhere around 40% to being just under break-even in the matter of a few days, this is also why I stick with a position so long as there's a good reason and am not run out of it by emotional market moves as we have seen in gold over the last week.  In fact those emotional triggers that are meant to knock you out of your position are often a good timing signal and actually helpful in letting you know you are on the right track, as long as you can confirm that the move is likely a head fake which we were able to. While Wall Street is knocking people out of their positions, guess who's picking up the closed out positions? And what timing they have, this is why these moves are so helpful in timing, I'll show you what I mean.

 This is the 15 min chart of GLD, the market has been extreme for some months now (as in the SPX melting up nearly the entire year without a single healthy correction), but under more "typical" markets, the 15 min chart is an EXCELLENT timeframe and a leading positive divergence like this is a signal I'd trade nearly every time, it's also stayed very healthy so I'm not easily run out of trades on early morning misdirection or 1 to 2 day moves, the market rarely moves in a straight line and when it does you need to be suspicious, the theme of the market is simple, they aren't going to make it easy to hold on and stay in any winning position, that's why a chart like this is useful as it tells me more about what's really going on so I'm not a victim of an emotional move meant to drive me out of the position.

Ask any finance student what moves the market and they will tell you, "Supply and Demand", ask any full-time trader and they will tell you, "Fear and Greed" and these are often created by shorter term market manipulation and taking advantage of the predictability of traders, GLD is an excellent example.

 I have been more concentrated on the rounding bottom area, but the 60 min chart opens the possibility that this is a much larger base than what we are looking at now.

 Here's this morning's gap, you can tell me all the news and why gold or the market did this or that, but the fact is there are people with much better information who have the money to move markets and what they are doing is what I'm interested in, they "Why" is after the fact and doesn't make you any money.

 Remember just last week I said, "I think we are past the mid-point of the rounding base and price action should pick up on the upside as we form the right side of the base"? However, just before that happened, what did Wall Street do? They shook out weak hands and took those shares at a discount and rode GLD over 2% higher in 2 days (and you know what kind of move that can be with some option or futures leverage). This is why a head fake move like the stop run at the yellow arrow, tends to make a good sign post of not only the continued strength, but a timing marker telling us the asset is about to move. Weak hands are shaken out and their shares are taken at a deep discount and we often see this just before a move/reversal, but since the market is fractal, this kind of relationship exists on many timeframes.

 If we look at a 4 hour chart, it backs up the 60 min. chart and suggests the GLD base is bigger than just the rounding bottom (green area) we are currently watching and may extend back to the 19th, maybe even further.

 Here's a daily chart of GLD, remember what I said about head fake moves and the market being fractal, meaning patterns and concepts we see on 15 min charts are also seen on daily charts, 1 min charts or weekly charts, the concepts are the same... this is why multiple timeframe analysis is crucial.

The distribution in GLD at September which turns in to a bearish triangle (suggesting GLD moves to a new leg lower) within a positive divergence reminds me of another market that played out almost exactly the same.

In this scenario, the bearish triangle and break below is the head fake move, the same way the stop out I showed you above, on a break below support during the misdirection of morning trade was a head fake move. The positive divergence in to the break lower as well as the triangle may in fact mean this GLD accumulation area is much bigger than we are currently looking at.

And the market it reminds me of? Many of you may remember this one, it was the 2012 market lows which we knew were going to reverse to the upside as the bearish triangle was being formed as 3C was positive in to the formation of the triangle, but retail traders are predictable and they will chase the break down, Wall St. depends on it and the dogma of Technical Analysis.

 Here's the SPY, it went negative in Q1 of 2012, in the yellow box it created a bearish triangle suggesting a new leg lower, but 3C was already positive in to the triangle (there were many timeframes showing us this) so we waited for the break below the triangle and went long as the market made new lows on the year in to June 4th, this was the low and also where we were buying long and closing short positions from Q1 (White arrows).

As is typically the case, the accumulated shares went to stage 2 mar-up where they were distributed in to higher prices, by September 13th and the F_O_M_C's QE3 announcement, we already had a negative divergence suggesting the market would not take off to the upside on the QE3 announcement like the 2 previous times, but would rather head down and it did.

GLD's daily chart has many of the same features seen in the SPY above, the initial distribution sending the market lower, a bearish triangle that was mis-direction, the head fake break below that put retail traders short (while we were covering shorts and going long) and then the move to the upside-once again, just like the 1 day GLD head fake last week, the head fake on the daily SPY chart was a good timing marker to know we were close to an upside reversal, but we needed 3C to tell us it was a head fake move and not a real breakdown just as 3C did when GLD / gold made a move below support last week...

Here's the move in gold futures (in GLD as well), note 3C shows a positive divergence, this tells us probabilities are it is a head fake move to shake out weak hands, it also tells us a move to the upside is nearing. Two days later, today, we have a break out to the upside.

*This is also one of the main reasons I don't get worked up about a.m. trade as its full of mis-direction.

Here's GLD's 1 min intraday chart, it's showing good confirmation in the move up today. The market has been relentless about filling gaps ever since High Frequency Trading became popular so a fill of the gap won't bother me as long as 3C holds up, it might be a great place to go long GLD if you are interested. In any case, so far the rounding base area is acting as expected and we are seeing a solid move in GLD, it may be a lot bigger than we first thought.