Wednesday, August 17, 2011

Trade Update: GLD

Well this has been an eventful trade, that is not a good thing. We were stopped out of GLD on the long side at $170.51 after 15 point gain. Then we went short on a break of $170, because the ETF was as badly overextended as the SLV was back in May. But shares only declined to about $160 before they returned all the way back to the $174 level. Then a strange thing happened on the way.

If you went short with us on GLD you expected to get stopped out at $172.34. Novice investors may wonder why this didn't happen today with the shares of GLD at $173.25. You can see why on the chart.

Notice that GLD opened at $172.50. So, it a gaped up through the stop. Meaning that our stop was missed. This is no biggie and happens from time to time. Right now we are going to move the stop up to $174.34.
So, what do we do now? First thing to notice is that GLD is just as overextended now as it was when it was at it's historic high just a few days ago. Now stare at the last month on the 52-week chart and notice the double top that's developing. A double top won't be confirmed until GLD breaks back below $168, but there it is in obvious development. Remember that double tops in which the second top is lower than the first are more bearish.

Next look down at the stochastic which is just under 80 and definitely pointed down. But it's the dramatic crash in volume takes my breath away. Shares can increase on decreasing volume for only so long, actually not so long. Not getting stopped out at $173.25 may turn out to be a good thing, only time will tell.

Right now I think that the thing to do is move the stop up to $175.50. If GLD is going to go down it probably won't break its all-time high first. If it does break $175.50, then we will have to abandon all hope on the short side and chase GLD long.

Sell full GLD @ $169.67
Stop at $175.50

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