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CHART ANALYSIS


The Reverse Journey Of Gold

06/01/11 01:33:19 PM
by Chaitali Mohile

The technical chart of SPDR Gold Trust is likely to retrace toward its lower support.

Security:   GLD
Position:   Sell

An ascending rally of the SPDR Gold Trust Shares (GLD) has surged to 149 levels from the lower level of 90. GLD has moved in a marginally converging wedge on the weekly time frame in Figure 1. The index has plunged to a lower trendline each time it challenged an upper trendline resistance. The lower trendline is marginally converging; therefore, the wedge looks more like an ascending channel. But the higher lows of GLD formed the converging lower trendline. A bullish trend has been in charge of the rally since late 2009, dragging GLD to the new highs. We can see the average directional index (ADX) (14) and the positive directional index (+DI) has never slipped below 20 levels, indicating the healthily developing uptrend in Figure 1.

FIGURE 1: GLD, WEEKLY
Graphic provided by: StockCharts.com.
 
However, the relative strength index (RSI) (14) is not in sync with the price rally. The oscillator has been range-bound between 50-70 levels since the very beginning of the bullish journey. Although these indicators (ADX and RSI) looked pretty supportive initially, they are reflecting bearish reversal signals in the current technical situation on the chart.

GLD has moved forming higher highs and lows, but the trapped RSI (14) highlights negative divergence for GLD. The ADX (14) is about to hit overheated uptrend levels above 40. In addition, the index is ready to hit the upper trendline resistance, which would result in an intermediate corrective rally. The volume in Figure 1 is the only encouraging technical indicator that would protect the core damage of the price rally.


We can see the 50-day moving average (MA) support below the lower trendline; therefore, GLD is unlikely to enter a long-term bearish trend. In other words, the future bearish rally would be a technical correction of GLD. For additional reference, the uptrend on the monthly time frame is highly overheated, which could result in an intermediate bearish rally in next few weeks. Therefore, traders can trigger light short-positions once the descending rally is confirmed. The target for the bearish rally would be the lower trendline support in Figure 1.

Hence, GLD is likely to undergo a bearish reversal journey in the next few sessions.



Chaitali Mohile

Active trader in the Indian stock markets since 2003 and a full-time writer. Trading is largely based upon technical analysis.

Company: Independent
Address: C1/3 Parth Indraprasth Towers. Vastrapur
Ahmedabad, Guj 380015
E-mail address: chaitalimohile@yahoo.co.in

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