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CONSOLID FORMATION


GLD In Wide Consolidation Range

10/10/12 11:50:24 AM
by Chaitali Mohile

The SPDR Gold Trust Shares is consolidating in a wider range. The recent volatile movement in the gold sector respected the support-resistance of this consolidation range.

Security:   GLD
Position:   N/A

A long bullish rally of SPDR Gold Trust Shares (GLD) ended in mid-2011 by entering a sideways price action on the monthly time frame chart in Figure 1. Since 2005, GLD has been surging higher and higher, hitting a new high at 185 in 2011. The steady bullish rally turned shaky only in 2008 as it retraced towards the developing 50-day moving average (MA) support.

However, GLD regained bullish strength and resumed its upward rally. As the stock reached a new high at 185 levels, the relative strength index (RSI) (14) in Figure 1 formed a lower high, forming a negative divergence. The average directional index (ADX) (14) reached highly overheated uptrend levels, and the moving average convergence/divergence (MACD) (12,26,9) was extremely bullish. These technical conditions showed a bearish reversal possibility for GLD.

FIGURE 1: GLD, MONTHLY
Graphic provided by: StockCharts.com.
 
The stock reversed its bullish rally and entered a robust consolidation period. The wide range allowed traders to trigger low risk positions between support and resistance. All the three indicators in Figure 1 have slipped into a comfortable bullish zone. Therefore, GLD is likely to hit the upper consolidation range at 185 levels. However, we need to watch for a bullish breakout of the upper consolidation range.

The weekly time frame chart in Figure 2 shows detailed price action of GLD. The recent movement in gold was scary. GLD has reached its previous high resistance at 175 levels. The intermediate rally within the support-resistance zone began with the support of 150 levels. The upward price opened a healthy short-term buying opportunity. After taking a long-term view on the technical charts, we can see the stock is moving within the wide consolidation range. The stock has two resistances, first at 175 levels and then followed by 185 levels.

FIGURE 2: GLD, WEEKLY
Graphic provided by: StockCharts.com.
 
The relative strength index (RSI)(14) was stuck at 50 levels. However, as the price surged above the 50-day MA resistance in Figure 2, the indicator surged above the center line. Currently, the oscillator is reversing from 65 levels, indicating the possibility of a fresh downward rally. The MACD (12,6,9) recently surged in positive territory, suggesting bullish momentum. The trend indicators, the ADX (14), is showing a developing uptrend for GLD. Thus, the indicators are highlighting mixed views. But the doji candlesticks and the other two small candlesticks near the resistance line are suggesting that the rally is losing its bullish strength. In such a scenario, we can anticipate a sideways price rally near the resistance line at 175 levels (see the black dotted line).

During this short-term horizontal price rally, the stock could retrace to challenge the 50-day MA support. Once the RSI (14) stabilizes above 60 levels (overbought region), GLD is likely to breach the current resistance line and surge toward the next potential target of 180 levels. Thus, GLD is likely to remain range-bound in the long-term as well. Traders can easily trade the rallies between the wide range of 180-175 and 150.



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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