Saturday, March 5, 2016

Keep Your Eye on this Gold Chart

I gave Oxford Club Chairman Circle members a briefing on gold this past week, aboard the Crystal Symphony. It's time for an updated chart.

This is a chart of the price of gold through Friday. By the numbers ...

1. We can see that gold broke out of a bull pennant pattern. On Thursday, it closed at $1264.90. That is above the top of the "flagpole" that the pennant flies on -- that top being $1263.90. So, that's very bullish. This can be seen as confirmation of the bullish pennant. And that would give us a price target of $1,386.

However, the next day, Friday, gold closed lower at $1,260.10. So we do not have a weekly confirmation of the breakout. I'd consider this bull pennant half-hearted (for now).

2. The 50-day moving average crossed above the 200-day moving average. The question now is, "is the 200-day moving average rising?" That's not as simple a question as you might think. It all depends on how you compute the 200-day simple moving average. And there is nothing simple about a simple moving average.

Bloomberg computes the 200-day MA as rising. Stockcharts does not. Finviz agrees with Bloomberg, at least on the GLD

Do you see how confusing technical analysis can be? And the question is important, because a "golden cross", an important technical signal, occurs only when both the 50-day and 200-day moving averages are rising.

I think we'll call this one a "maybe."

3. There was strong "sell" volume on Friday. I think this is traders positioning themselves for a potential pullback next week. Still, not a confirmation of the bullish move.

4. RSI, a measure of momentum, fails to confirm the bullish move.

5. Aroon showed that gold's bullish trend started in early January. That trend remains in place until proven otherwise.

My take-away from all this is that we haven't seen a clear breakout in gold yet. I think we could be in for a pullback/correction to the dominant bullish trend.

One interesting note: The Prospectors & Dealer's Association of Canada (PDAC), the biggest mining conference in the world, is going on right now. It ends March 9th. Usually, mining stocks (including gold miners) sell off after the conference ends. So perhaps we'll see weakness until that runs its course.

But overall, I think both the trend and recent action in gold is very positive. I would view pullbacks as buying opportunities.

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