- January 5, 2012
Gold’s Killer Buy Signal
by Donald HarderBack in October, sentiment was in the dirt and the S&P 500 sliced through key support, raising fears of a double dip recession and a retest of the 2009 low.
What happened next was truly spectacular. On October 5, the market gapped down at the open, but quickly found buyers, leading not only to a one-day rally, but the best market trend of 2012.
From Failed Moves Come Fast Moves
October 5, 2011 marked a failed move on the S&P 500 and as we can see from the chart, oftentimes these failed moves lead to extremely fast moves. In fact, $SPY put in a relatively rare “Three White Soldier” buy signal following that move and didn’t pull back to let pullback buyers in until the move was exhausted at a price 20% higher.
Gold’s Failed Move
Gold, as expressed by $GLD is exhibiting a failed breakdown much like $SPY did in October. It is still unclear whether this move will lead to an explosive move to the upside the way $SPY did, but it’s certainly worth watching at this level.
Gold’s Weekly Uptrend
What makes this failed break more interesting is the fact that it occurred directly at the strong, weekly uptrend line as you can see below. $GLD has been in a severe correction for months now, but if you stand back and look at the larger trend, it remains in tact and the corrective move was simply a three wave pullback to the rising uptrend line.
Taking the Trade
Gold is never easy to trade and this time isn’t any exception. You may wish to wait for confirmation that this move over the past 4 trade days isn’t just a dead cat bounce. If the price can regain the 200-day average, just above $157 on a closing basis, the failed move signal will arguably be confirmed, raising the probabilities of a successful trade.
J.C. Parets, of All Star Charts offers more thoughts on this set up in this video.
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