Last time we discussed Gold (Dec 11, 2008), I posted a 60-minute chart of GLD. On that chart I had a simple EW target of 86 based on wave A equal wave C
Well, that so far has been a darn good target. Look where GLD turned for a pullback. I have added another target based on C = 1.62 * A
Now we have a very interesting situation. Both Gold and GLD are, finally, in a confirmed uptrend. The rise from Dec 7 looks impulsive. I cannot say whether it is a wave C, a wave A, or a Wave 1 of some degree. It already has pulled back 38% and sitting at a somewhat important support/resistance level around 82.
Let’s step back and look at the daily chart
Some indicators are turning over. That does not mean that GLD cannot go higher. But maybe the pullback is not over yet. There is a very well defined support/resistance area, and I, personally, would take profit, or lighten a position if that area would not hold. Why so cautious? Well, look at the green trend line that is connecting all the lower highs, Gold need to make a higher high at some point, and then I may be able to relax a little.
Things have been improving really. Stepping back and looking at the weekly chart, we see this
I had posted this before, and had worried about 89 week MA flattening with price beneath it, and had said price had to rise to improve that ominous view, and price has just done that. The weekly picture looks a lot better than a few weeks ago. I just want to be a cautious with shorter time frames. The reason for all this cautiousness is that I am not yet convinced that the Gold Bull is back.
On the same post of Dec 11, 2008, I pointed to what looked like an Island Reversal pattern. Now we know that pattern was valid as GLD has advanced nicely. Technical Analysis works sometimes!
Some big boys of Wall Street and Bay Street, and I am sure some other streets, deride technical analysis through their writings or TV interviews. My question is, if their methods work so well, how come people are redeeming whatever meagre amount that is left from their mutual fund holdings?
I have discussed how all analysis is susceptible to failure. I humbly recommend that newer readers read that post of Sept 26, 2008.
With technical analysis I see the failure soon enough to run for safety. With other brands of analysis, I shall wait for some corporate exec to put the numbers together, and then I have to trust that the books are not cooked (I am sure they never cook them), and then I have to pray the numbers have not been leaked to some better connected than me (I am sure they never leak numbers) and then, after the close of the market, I either get killed or rewarded – one heck of way to go about trading a bear market.
And that is just ordinary companies. Analyzing something like gold needs an understanding of so many different financial and monetary parameters.
I am a simple man. I’d rather take a chance on my island reversal.