A Yellow Flag in the Yellow Metal

 | Oct 06, 2012 | 1:30 PM EDT  | Comments
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Stock quotes in this article:

gld

,

TLT

We are looking at a relatively important hurdle in SPDR Gold Trust (GLD), so if you're trading this one, I have to throw up a yellow flag here. While bigger-picture pattern and the daily chart would still vote for continued higher prices, there are some time and price resistance parameters that need to be carefully watched.

In explaining why, let's look at a past example of resistance established through symmetry -- that is, similarity or equality when comparing swings in the same direction, be it on the price axis or the time axis. In a past setup, iShares Barclays 20+ Year Treasury Bond (TLT) had been in a buy mode, then had moved into a resistance decision that included a symmetry projection of the prior rally swing (a 100% projection, or measured move, of a prior swing).

That TLT swing lasted 11 trading days and brought the stock higher by $7.20. When I saw the most recent rally into resistance had lasted 10 trading days and equaled $7.19, that had caught my attention. After this, a short play was triggered and we saw a healthy decline follow a failure to clear that symmetry resistance.

TLT -- Daily
Source: Dynamic Trader

GLD is also facing symmetry resistance at the moment; does this mean that the same exact move will happen here? Actually, no -- but it is certainly worth watching just in case it does, so let me leave you with some parameters to watch. I'll start by highlighting the symmetry resistance on the weekly chart, where the prior major rally swing lasted $25.73 vs. the most recent swing into the Oct. 4 high, which lasted $25.54.

GLD -- Weekly
Source: Dynamic Trader

These swings are very similar to one another, so it would be a place for some natural resistance to a rally. Now, if the GLD can clear this same resistance area by a decent margin -- $174.26 is the symmetry projection -- my chart does suggest a much higher bigger-picture target, at the $196.07 area, that could eventually be met.

The second thing I'm seeing on this weekly chart is some Fibonacci timing resistance to the current rally, as illustrated by the pink histogram below the chart. This is where a clustering of Fibonacci time cycles come together, thus increasing the odds for a possible reversal of the current uptrend.

All that said, the daily chart of GLD is still bullish in my mind, as long as price can hold above the Sept. 26 low. As long as I see that, I will consider looking at the daily-chart pullback zones for a possible buy entry. These zones come in at $171.08 to $171.33 and $168.98 to $170.53.

GLD -- Daily
Source: Dynamic Trader

If the GLD ends up melting through these zones, and also takes out the Sept. 26 low, we'll have to consider that we might see a much deeper downside correction from the time and price resistance parameters before we can watch for a resumption of the rally. Let's see what GLD does against these key parameters and then trade accordingly!

For more information on my trade setups and trigger entries using my Fibonacci zones, please refer here.

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