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Golden Entry Points

10/23/17 05:36:21 PM
by Mark Rivest

After basing for more than a year, Gold and related ETF's may have begun a significant rally.

Security:   GLD
Position:   N/A

After Gold's significant bottom in late 2015 it rallied for six months and then entered what could be a basing pattern for the next significant bull move. Evidence from the momentum dimension hints that the next big gold rally may have begun on the week of October 9-13. Examination of the price dimension shows two possible entry points to jump on the golden bull.

Momentum Dimension

A great way to view momentum indicators is to think of them as fuel gauges. If momentum reaches the oversold zone there's potentially a lot fuel to move price up to the overbought zone. Stochastic indicators are usually very sensitive to price movements. Please see the Weekly GLD chart illustrated in Figure 1.

Using the SPDR Gold shares ETF (GLD) as a proxy for the gold market, note the weekly Slow Stochastic recently reached the oversold zone at 15%; the fast line, in blue, is on the verge of a bullish cross over of the slow line, in red. This implies the next rally could last at least for several weeks.

Backing up this evidence is the weekly RSI which recently found support at 50% and has resumed its upward climb. It could take several weeks for RSI to reach the beginning of the overbought zone at 70%.

Figure 1. A move above the 131.15132.93 zone opens the door to reach at least a .618 retrace of the bear market at 153.14.
Graphic provided by:
Price Dimension

The last significant GLD peak was at 131.15 made in early July 2016. The .382 resistance level of the entire bear move from the major top in 2011 to the late 2015 bottom is at 132.93. A move above 131.15-132.93 zone opens the door to reach at least a .618 retrace of the bear market at 153.14.

At the close on October 13, 2017, GLD was at 123.82, only 3.3% above the last bottom of 119.05. If GLD is less than 6% above 119.05 it's in the zone for a reasonable long entry using 119.05 as the stop loss.

There could be a second-long entry point at a higher level. The GLD and Gold price patterns could be in what I call "A domino set up". In this situation the bulls run attacks on stop loss buy orders above resistance levels. For GLD the first level to attack is the recent top at 128.32 which if breached could propel prices up to the important July 2016 peak at 131.15. Stop buy orders triggered above this level could quickly bring price to the next resistance which is .382 retrace of the bear market at 132.93. Above this level is minor resistance at the March 2014 top of 133.69 and finally the August top at 137.55. After this last barrier it could be clear sailing up to at least 150.00.

Of these levels the most important could be 131.15 because it's the most significant top since the major bottom made in late 2015. Additionally, it's the second of a potential double peak with the high at 128.32. A breach above 131.15 could bring in a significant number of new buyers to the game.

A long entry just above 131.15 using a 6% stop loss represents a better than two to one risk/reward ratio if GLD can reach at least 150.00.

Stock Market Update

During the week of October 9-13 the US stock market represented by the S&P 500 (SPX) managed to be both relentless and boring, as prices slowly crawled up to a new all-time high at 2557.65 made on October 13, 2017. Is this a sign of bullish exhaustion? It's too early to say. Despite overwhelming bearish evidence from the dimensions of momentum and sentiment, the stock market bulls have been able to keep the rally alive.

If the SPX breaks below 2488.00, short 25% stocks and use the 2017 high as the stop loss.

My October 12 article "Comparing October 2007 to October 2017" noted October 11, 2017 the ten-year anniversary as a possible peak for the current bull market. My calculation was based upon an exact five years of the 2002-2007 bull market, multiply by two and adding the ten years to the October 2007 top. The actual bull market from 2002-2007 was five years and one day. I didn't think this one day was material so it wasn't used in the calculation for the bulls-eye target date. Using five years and one day multiplied by two added to October 11, 2007 targets Friday October 13, 2017. Superstition says Friday the 13th is a bad luck day. Perhaps Friday,October 13, 2017 could be a historical bad luck day for the stock market bulls.

Further reading: Frost A.J and Robert Prechter (1985) "Elliott Wave Principle", New Classics Library.

Mark Rivest

Independent investment advisor, trader and writer. He has written articles for Technical Analysis of Stocks & Commodities, Advantage, and, Finance Magnates. Author of website Four Dimension Trading.

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