What To Do About Gold

May 19, 2010 by  

Yesterday, a CNBC headline said it is  time to exit gold. The  reason given  was that gold had reached a significant-not named-indicator pointing to a strong sell.   In order to  learn more one  would have to subscribe to the financial newsletter costing $400 per month.

We know that regardless of how compelling the news is,  we always take a look at the stock chart to determine what if any action, to take.

So, lets take at look at the SPDR Gold Trust ETF, GLD.

GLD broke out of short term resistance levels of 110 app. in the beginning of April and moved up to test a new resistance line at 114. We saw  some profit taking and then a new entry trigger on the Williams %R brought us to an all time  new high of 122 on May 12. On that date, prices surpassed  the 119.57 high of December 2009.

Also, on that  day we  saw a Lincoln’s hat and the next morning prices opened slightly lower with prices continuing to gently  stair step down over the next few days .This morning GLD is down  $1.19 at the open. In addition, we are now seeing the beginning of a  MACD crossover to the downside with our first histogram bar to the negative side.

What were the signs pointing to a short term exit?

First of all, the strong profit generated since April would have had the trailing stop set fairly tight to preserve profit and be ready for inevitable profit taking.  For some the attitude: I am happy with my profit, I will take my money off the table and look for a new trade would be the standard operating procedure.

Second, we saw that the new high of 122 was not sustained, prices pulled back and no signs yet of re-testing that level.

Third, we dropped below the round number resistance of 120.

Fourth, prices are dropping well below the 7 day moving average which fits one of our exit strategies.

Lastly, in keeping with our goal of minimizing losses and letting the profits run, we would have established our profit target before entering the trade.  We would have exited once we had fulfilled that goal.

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