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Gold Rolling Over

03/09/09 10:14:25 AM
by James Kupfer

Gold has potentially put in an intermediate-term top.

Security:   $Gold
Position:   Sell

On February 19, 2009 (posted on 2/25), I made the cyclical case for why gold was likely to be approaching an intermediate top. In that article I stated, "Should gold make it above the $988 region, there is further resistance at the $1,010 and $1,025 levels." The next day, gold made an intraday high of $1,007.70.

Looking at an updated daily chart (see Figure 1), we can see that gold has formed a linear regression channel. The channel itself is very steep, so much so that it is unsustainable. After having so many consecutive down days, gold reached a very oversold level, so the large up day on March 5 was a necessary relief rally. This will provide an important test for gold. If the resulting rally fails to climb above the previous top, then in all likelihood the intermediate top has been made.

FIGURE 1: XGLD, DAILY. Note that gold has formed a linear regression channel here.
Graphic provided by: Wealth-Lab.
Looking at a monthly gold chart (Figure 2), the most important thing to note is that monthly stochastics are very overbought and beginning to turn down. Stochastics accurately helped identify the last few major tops in gold and is likely doing so now. In sum, there is significant evidence that gold has reached a significant top. Assuming this is the case, gold should eventually drop below $700.

FIGURE 2: XGLD, MONTHLY. Monthly stochastics are very overbought and beginning to turn down.
Graphic provided by: Wealth-Lab.

James Kupfer

Mr. Kupfer is a market professional and amateur stock market commentator. Disclosure: It is likely that Mr. Kupfer has or will enter a position in any security he writes about.

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Date: 03/10/09Rank: 5Comment: 

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