- Trade: Short, Limit Cover half @ $98 and half @ $85, Stop Loss @ 124.5 (8%) -OR- Jun 30 113.00 Puts trading $2.91, BE $110
After nearly three years of uninterrupted gains, beginning in late 2008 and ending in late 2011, GLD set a high water mark at $185. Over the next year the settled into a clear pattern, the base of which measured roughly $37 or 20%. The $151 support was shattered in early April giving way to a roughly $37 or 25% decline in less than three months. This accounts for a measured move of 1.0(nominal measure of base).
Again we find ourselves low in the tail end of a , after four consecutively lower highs. Oddly enough the base of this pattern measures $28.5, again another 20% measured base. A full measured move would take GLD to roughly $85, down 25%, coincident with '08 - '10 support. Interim support to be found around $97. Remember the first half of the year is typically seasonally weak for gold prices, the last crash occurring on the threshold of March and April.
Additionally consider that gold has a particularly loyal set of investors; they love to buy the dips and psychological supports( at least from what I can tell). So on one hand this absolutely bolsters the current support, on the other hand it leads to interesting circumstances. Below this current price level the at price drops off relatively sharply, until about $100. When you see heavy accumulation at a given price support with a pocket below, it creates vacuum conditions and usually leads to capitulation if the support is broken. These same conditions existed and, I believe, contributed to fast drop in '13.
If you're a gold bug, it would be prudent to maybe hedge your position with some puts.
If you're looking to short, here might be your catalyst.
Regardless of where you stand, best of luck.
Update (10am: 3/9/15) -
Main support has been broken, but two intermediary supports remain for the short term. The first is $111.50, which I will give moderate attention to. The second is at $109.90, which should be the last strand. Otherwise I believe the trade is on. Cheers. If you follow currencies check out my related DXY idea.
The way I see it we are at a critical point: the price is testing a support level at the $108-$112 range, we've last seen this support in midMay/10 to midAug10. Price "tested" this support last year and rebounded.
A negative thrust from Oct 12 to Apr 13 defined a target of $95 so we may well be on our way there but have to cross the support range (I'm using P&F for long term forecasting) that re-established itself since ~Nov 13.
A Put protection to this point is a very good idea
Below this current price level the volume at price drops off relatively sharply, until about $100 on GLD. When you see heavy accumulation at a given price support with a volume pocket below, it creates vacuum conditions and usually leads to capitulation IF the support is broken. These same conditions existed and, I believe, contributed to fast drop in '13.
This is just a premise of course, but its one Ive used in the past. Cheers, and thanks for the thoughts.