Gold Tests The Breakout

07/29/08 09:18:20 AM

by Arthur Hill

After returning to broken resistance with a sharp decline in July, the streetTRACKS Gold ETF formed a small consolidation, and there is a big test at hand.

Security: GLD
Position: Hold

Figure 1 shows the streetTRACKS Gold ETF (GLD) over the last five months. The ETF firmed in the mid-80s from late April to early June and then broke resistance with a surge in late June. The breakout featured a gap, a trendline break, and a move above the early June highs. This powerful breakout carried GLD above 95.

FIGURE 1: GLD, DAILY. This ETF firmed in the late 80s from late April to early June and then broke resistance with a surge in late June.

Graphic provided by: TeleChart2007.

After becoming overbought in mid-July, GLD stalled and then declined with a sharp pullback. Despite such a sharp decline, the ETF is finding support near broken resistance around 90. This is the moment of truth for gold. A successful best would keep the June breakout alive and uptrend in play. Failure to hold support would negate the breakout and argue for a test of the May–June lows.

FIGURE 2: GLD, 30-MINUTES. Here, GLD broke support with a sharp decline in July and then firmed in the low 90s.

Graphic provided by: TeleChart2007.

For an expanded view of the three-day consolidation, I am looking at a 30-minute candlestick chart. GLD broke support with a sharp decline in July and then firmed in the low 90s. The slight advance over the last few days looks like a rising flag, which is potentially bearish. Flags are corrective patterns that slope opposite the bigger trend. A bearish flag slopes up and a bullish flag slopes down. This rising flag looks like a corrective rally to alleviate short-term oversold conditions. A break below flag support would signal a continuation of the prior decline.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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