Why is this gold chart a must see chart for serious investors and traders? The answer is simple. Those who have followed along have profited handsomely by buying a large core position aggressively in $600s, selling half of the core position at $1904 and selling the remaining half at $1757, undertaking a large number of profitable short-term trades from the long side during the gold bull market, and undertaking a large number of short-term trades from the short side to profit from the gold bear market.
At The Arora Report, we rely heavily on adaptive algorithms that take into account many, many factors. In our research, the four most important factors at this time are technicals, quality of ownership, inflation expectation momentum, and sentiment momentum. All of the four important factors are shown on the chart of popular SPDR Gold Shares ETF (GLD).
Please click here for an enlarged chart.
This is the first in a series of four articles. In this article, technicals will be addressed; the other three important factors will be addressed in subsequent articles.
Symmetrical Triangles
The chart shows two symmetrical triangles markets by orange colored lines.
A symmetrical triangle is formed when the prices behave in a manner such that the price range is wide in the beginning and contracting as time progresses. Symmetrical triangles are important to watch because they lead to break outs. A break out can be in either direction. A break out from a symmetrical triangle in the direction of the trend happens far more often than against the trend. For this reason, symmetrical triangles are often considered as continuation patterns; however, sticking with the assumption can be dangerous. A symmetrical triangle formed in the price chart of gold at a time when gold was approaching its highs broke to the downside as shown in the chart.
Right now, gold chart is forming another symmetrical triangle as shown on the right-hand side of the chart. In the big picture, gold trend is still down. Therefore, chances of this triangle breaking to the downside are higher than breaking on the upside.
Fibonacci Retracements
Leonardo Pisano Bigolo, popularly known as Fibonacci, was an Italian mathematician who originated many concepts that are still in use today. Fibonacci retracements are ratios that are useful in determining potential reversal levels. The chart shows Fibonacci retracement levels at 38.2%, 50%, and 61.8%. In the big picture, gold retraced to the 61.8% level. Often 61.8% level marks the bottom of a cycle The next retracement level is 76.4%. The retracement of gold to this level cannot be ruled out. . In the big picture, such retracement will bring gold price to the bottom of the target zone shown on the chart. The point is that there is still significant downside risk in gold; this risk will be alleviated if gold continues to meander between 50% and 61.8% for a few more months.
Very Long-Term Target
As my long-term readers may recall that when I issue an unequivocal signal to sell gold at $1904, I forecasted the target zone shown on the chart. That call has proven spot on as gold dipped one third of the way into the target zone.
