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by Gary Grosschadl
The TSX Gold Index reflects the current uncertainty of where gold is headed next. It's caught in an "EMA sandwich."
Position: Hold
Gary Grosschadl
Independent Canadian equities trader and technical analyst based in Peterborough
Ontario, Canada.
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MOVING AVERAGES
A Golden Sandwich
05/26/06 02:46:58 PMby Gary Grosschadl
The TSX Gold Index reflects the current uncertainty of where gold is headed next. It's caught in an "EMA sandwich."
Position: Hold
| Figure 1 is a daily chart of this gold index, called Standard & Poor's/TSX (Toronto) Capped Gold Index. Here, the chart shows the index suspended between support and resistance. Currently, it is bouncing off a previous resistance level, which may be thwarted by two overhead marks. |
| Along with the previous levels marked on the chart, the index can be seen as sandwiched between two prominent moving averages, namely the 20-day and 200-day exponential MAs. The 200-day EMA would be a major support level currently at 267. As the index is still above this mark, the longer-term trend is still bullish. The short-term outlook is bearish via the 20-day EMA. After a significant rise, a move below this moving average often heralds a downleg. |
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| FIGURE 1: THE TORONTO GOLD INDEX, DAILY. This gold index is suspended between support and resistance. |
| Graphic provided by: StockCharts.com. |
| |
| Under these conditions, short-term traders could adopt the following strategies: 1. Assume the stock/index is in failure mode until it closes above the 20-day EMA, therefore staying out of the market or being on the "short" side. 2. Play the bounce off any future move off either the 200-day EMA or the nearby trendline at 280. Then the sell target becomes the overhead resistance at the 20-day EMA. |
| Several indicators are noted below the chart: The moving average convergence/divergence (MACD) gave a timely sell signal near the peak of the uptrend. Likewise, the buy signal comes with a similar crossover from these low levels. The relative strength index (RSI) is in bearish territory below 50. Note the good divergence signals previously plotted: a positive divergence to price action before the upleg and the negative divergence as the index was rising. The stochastic oscillator also shows a similar divergence and is now in oversold territory. A move above 20 on this oscillator could signal the next upleg. |
| In conclusion, the next significant move may come with a resolution of this EMA sandwich, be it a move below or above the EMAs I mentioned or a timely future bounce of the 200-day EMA support. |
Independent Canadian equities trader and technical analyst based in Peterborough
Ontario, Canada.
| Website: | www.whatsonsale.ca/financial.html |
| E-mail address: | gwg7@sympatico.ca |
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Date: 05/26/06Rank: 5Comment:
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