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Gold SPDR Set Up For A Trend Reversal02/10/10 09:33:23 AM
by Alan R. Northam
Besides the pitchfork, Alan Hall Andrews developed many other lesser-known methods of technical analysis. Among these is the sliding horizontal line. The sliding horizontal line along with the pitchfork shows that the Gold Shares ETF is now set up for a trend reversal.
|Figure 1 shows the SPDR Gold Shares exchange traded fund (GLD). This figure shows that GLD has formed three significant pivot points labeled P0, P1, and P2. From these three significant pivot points, an Andrews pitchfork is drawn. Andrews discovered that 80% of the time, price would move down to the median line (ML). Andrews noted that the median line of the pitchfork acted as a price magnet.|
|FIGURE 1: GLD, DAILY. Here are the Andrews pitchfork and sliding horizontal line.|
|Graphic provided by: AmiBroker.com.|
|Under certain conditions, price would fail to reach the median line before breaking out of the pitchfork as shown in Figure 1. This is known as a price failure. Andrews noted that when price broke out above the upper horizontal line of the pitchfork (labeled U-MLH) after a price failure, a reversal in trend was likely. After a breakout above the pitchfork, Andrews would draw a sliding horizontal line off the high point of the break (labeled SH). The sliding horizontal line acted as a reversal line. A breakout above this reversal line would signal a trend reversal. Figure 1 shows the sliding horizontal line. A breakout above this line would indicate a reversal in trend for the gold ETF. Therefore, the sliding horizontal line is an important line to watch.|
|As a side note, Andrews recognized that a reversal in trend after a price failure often resulted in a price move greater than the move from the origin of the pitchfork to its first pivot. In other words, if price breaks out above the sliding horizontal line, the price move in the new upward direction could be greater in length, and then the price would move down from P0 to P1.|
|In conclusion, GLD has broken out above the upper horizontal line of the pitchfork, signaling a high probability of a reversal in trend from down to up. A breakout above the sliding horizontal line will signal that the reversal is taking place. In addition, a trend reversal could result in a significant price increase due to the failure of price to reach the median line before the reversal occurred. However, until the sliding horizontal line is breached, the main direction of the trend remains down.|
Alan R. Northam
Alan Northam lives in the Dallas, Texas area and as an electronic engineer gave him an analytical mind from which he has developed a thorough knowledge of stock market technical analysis. His abilities to analyze the future direction of the stock market has allowed him to successfully trade of his own portfolio over the last 30 years. Mr. Northam is now retired and trading the stock market full time. You can reach him at firstname.lastname@example.org or by visiting his website at http://www.tradersclassroom.com. You can also follow him on Twitter @TradersClassrm.
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Date: 02/15/10Rank: 3Comment: