GLD - Dec 27, 2008

charts courtesy of stockcharts.com

I started my post Christmas blogging with real food, now let’s talk real money

This is a daily chart of GLD ETF

So far, so good, eh?

In a previous post, I discussed how the impulsive nature of the current rise has caused me a technical dilemma. I also pointed to 82 area as a strong support level.

GLD bounced off the 82 area and did a quick run on Friday. Volume, however, was not great. This kind of low volume days are always a cause for suspicion. But, we do not have much to complain about. We have been doing well with this. The exogenous environment has been very good as well, Gold has been outperforming the market indexes, gold miner have been outperforming gold, US Dollar has been dismal. There also has been some attention being paid to gold for its monetary value in a world where every central banker seems to be on a mission to devalue the currency his/her bank prints.

Now, price is hitting against some strong resistance. It has worked off some of its overbought readings. Friday’s low volume jump turned the indicators around. Being overbought is OK. It should happen when price gathers steam and tries to push through resistance.

One of our astute readers, JK, posted this as a comment to the post of December 20.

This seems to be an impulsive wave, which puts into question if this is actually a part of a primary B from the OCT 27 low. The uptrend seems strong now, so it really makes me open to other scenarios now, since a double three could be negated. I see a double three on the gold miners and a possible ascending triangle. I am still going to keep primary B of Cycle 2 open. IMHO, this uptrend seems particularly strong that any pullback will be brief. The weekly indicators are recovering, suggesting that strength. I just cannot envision right now how that would play into the wave counts, especially if it is a brief period of consolidation. If so, that would mean a pretty strong B wave. I will have to start considering bullish scenarios

Very good observation. In fact, we should always consider both the bull and the bear case, and we have been discussing that it might be a 1-2-i-ii type of wave.

One thing that has bothered me a bit is a slight overlap that exists between the peak of November 14 and the low of December 5, as we can also see from this 60 minute chart

I have also checked February 09 and December 08 future chart, they have the same pattern as continuous contract chart. Here’s the daily chart of $GOLD

Notice that MACD Histogram has been making lower peaks. There are some divergences built on 60-minute chart as well.

In short, I am not very comfortable with calling the rise from the last lows as a wave 1, and am still leaning towards an a-b-c. But no one has ever accused me of not being flexible when it comes to market activities, and I will be more than willing to change my tune and become a born-again gold bull.

Meanwhile, I think we have it rather easy, especially if we are in this from lower levels. On the 60-minute chart of GLD, I had two theoretical targets, 86, and 90. 86 has been achieved, 90 may be a stretch, but all it takes is a hot spike through some short positions.

Price is in a tight area of support and resistance, it has already retraced 50% of the entire decline, I think we all can handle it technically off these levels.

On a different note, Gold, IMHO, has held so well against so many things because it is money, and its status as money is recognized worldwide. There was a piece of news that Credit Suisse Group had decided to pay its bankers’ bonuses with some structured paper or loan obligation or some similar sort of crap. Good for the Swiss bank. There were cries of foul from disgruntled bankers. Why? Isn’t the official position such that all these papers are good but market is mis-pricing them, so they should be happy about the prospects of making a killing when irrational markets of structured loan obligation papers become rational. Do you think those bankers of paper would have been as miffed had their bonuses been paid in gold coins?

Yet, take a cyber trip across financial blogs, it is apparently fait accompli that we will have hyperinflation soon, very obvious that bonds should correct, very obvious that the Greenback is dead. Things are just too obvious to too many. That does not make me feel comfortable holding a trading position. So I will watch my chart levels and let them tell me what to do.