Rondeau’s Technicals: All That Glitters Is GLD

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During times like these of heightened uncertainty, investors always look for ways to protect their assets from a multitude of potentially negative future events. With such concerns, professional as well as everyday investors inevitably turn to gold. And for good reason.

Ray Rondeau Historically, gold has been a reliable safe haven, holding its value in even the most troubled political and economic times and through the most vicious of bear markets. Gold is widely viewed as a classic hedge against inflation-related loss of purchasing power, but also to protect against a declining dollar. Gold is also a great tool for portfolio diversification, which seems even more important today as investments around the globe appear to be becoming more and more correlated.

On that note, let's turn our attention to longer-term charts of State Street's SPDR Gold Shares ETF (NYSEArca:GLD). This ETF's objective is to reflect the relative performance of the price of gold bullion, minus expenses.


We begin by looking back at a weekly chart from 2005 through 2008. First, it's plainly visible that the price of gold has been more or less on a continuous long-term upward trend in this period, from points (A-B) on the chart. At Point C, the technical investor was given a beautiful long entry signal, where the price was not only retesting the upward-sloping trend line but also had a clear upward break of a well-traced, 18-month "symmetrical triangle" at Point C.

GLD Weekly Chart:2008 - 2008

More recently, over the last two years, we can see in the chart below that GLD has continued moving upward, but this time in a more consistent and predictable manner within a bullish price channel. GLD is now again at the lower boundary of the upward-sloping line (D-E) where price support has held on four separate occasions. (Those support points are indicated by the plus signs.)

In other words, we now appear to be at a critical juncture waiting for the charts to print a few more bars to give technicians a clearer signal of the ETF's probable price direction in an intermediate time frame.

GLD

Lastly, for a more thorough study, let's look a little more broadly at the price history of this ETF. In our above analysis, we broke our charts into two separate time periods to focus on the major technical patterns that were-and still are-playing out. The chart below shows the two patterns we looked at previously-the "Symmetrical Pattern" (A-B) and the "Bullish Price Channel" (D-E)-plus a major classic technical pattern that bridges them both.

In this third view, the more experienced technician will immediately spot the "inverse head & shoulders" formation in the center of the chart at points (D-F-G). How accurate and predictive was this pattern?

First, take a look at the vertical line on the right side of the chart depicted by the numbers (3-1-2). Using classic measuring techniques, we measure the distance from prices at the neck line break point ( F ) at price (1) to the lower part of the formation ( D ) at price (2). We then projected this same distance upward to price level (3), which, according to classic theory, is where prices should, at a minimum, rise to. On the chart, that would be point H which, surprise, is exactly where prices rose to and have since retraced from, bringing GLD's price to its current levels.

Technicians, of course, would view this as a logical self-fulfilling event, while technical skeptics and fundamentalist might argue this is mere coincidence. I'll leave that determination up to each individual reader.

Wherever people fall on that question, most I think would agree that gold's long-term price trajectory will not only be determined by global investors' desire to offset some of the risks we discussed above, but also, of course, the fundamentals of supply and demand related to the metal's practical uses. Our analysis of the charts simply gives us clues regarding the more probable outcome for future price movements and direction.

GLD

As always, have a profitable week and remember always, "Keep it in perspective."

Disclaimer: All data and information provided in this column are for informational purposes only, and should not be regarded as recommendations to buy or sell securities.

All charts created with TradeStation. ©TradeStation Technologies, Inc. All rights reserved.

Ray Rondeau is president of the Boston Chapter of The American Association of Individual Investors . When he's not trading using technicals, he presents to various groups on technicals and trading in New England and beyond. He can be contacted for presentation information at http://www.investorstein.com.

Don't forget to check IndexUniverse.com's ETF Data section.

Copyright ® 2010 Index Publications LLC . All Rights Reserved.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.




This article appears in: Investing , ETFs

Referenced Stocks: D , F , GLD

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