GLD - Jan 14, 2009

charts courtesy of stockcharts.com

Let us talk a bit of real money.

Real money is having a rough time these days.

In a post on January 12, I wrote

I have already read one article discussing manipulation and Comex conspiracy of paper gold versus physical gold - stuff like that. If this selling continues, we will most probably hear a lot of that

Well, today, I saw similar diatribes in two different sources, Gold goes down so it should be manipulation, capiche? No other explanation or reason needed, plain and simple!

Maybe they are right, who knows? Or maybe people sell to service bloated debt and leverage elsewhere, or maybe this hyper inflation theme has not reached deep pocket investors yet, and they buy some bonds or currency, or ...

The fact of the matter is that it drops and if I am in it, it takes my capital with it, my capital is more important than understanding why gold drops, really, I‘d rather be loaded and blissfully ignorant than destitute and knowing the true reason behind the drop in the price of gold

OK,

Here’s a daily chart of the ETF GLD

The last high of GLD retraced about 50% of the drop from March 2007 high to November 2007 low. It retraced about 62% of the drop from July 2007 high to November 2007 low. It has now retraced close to 50% of advance from November 2007 low to December 2007 high. If it keeps in line with previous retracements, next meaningful buy signal (open to your definition) may provide at least a tradable bounce. It is getting oversold fast, and, usually, not always, first drops after significant momentum peaks provide meaningful bounces, if not a continuation to the trend.

Here’s a weekly chart

Depending on how one looks at it, it may be called a bull market, by virtue of sitting on a long term trending moving average, or an ugly beast, by the sight of chopping action from the highs of 2008

The wave count is not very deterministic either. I think we will see lower prices over time. But I may change my mind in a second.

So, I need to be on my toes not to get caught on the wrong side of the metal.

In case you are not familiar with Point & Figure charts, I humbly suggest that you look them up, you may find them useful.

An OEW colleague of mine, Gabi, introduced me to P&F charts a long time ago, and I got hooked. I use them for a quick spotting of trend, support, resistance. I like the fact that they show me a condenced picture without too much noise

Here’s a 3-box reversal

Here’s a 2-box reversal

Don’t get yourself overly excited with price targets, they are just as theoretical as other price targets. Instead pay attention to levels and shape, and try to picture what you see on regular charts that you use