At BMR we closely track the CDNX and we use this Index, consisting mostly of speculative junior resource stocks, as our #1 leading indicator of the future direction of Gold prices and commodities in general. By gauging the CDNX, we were able to correctly call important bottoms in the Gold market last February and July. What the CDNX is telling us now, which other indicators are also showing, is that Gold is also bottoming out here in late January.
This morning John takes a look at Gold from a different angle as he analyzes the SPDR Gold Trust Shares ETF which trades on the NYSE:
John: The purpose of this article is to present graphically why I believe Gold has found a bottom this week or is in the process of doing so. I have chosen the SPDR Gold Trust Shares (GLD, NYSE) to represent Gold because being shares the chart shows the volume so the Chaikin Money Flow (CMF) indicator can be included to illustrate buying pressure. Yesterday, GLD opened at 129.83, fell to a low of 129.28 and then climbed to a high of 131.17 before closing at 131.16 on volume of 21 million shares for a gain of 1.06 (0.81%).
Looking at the 3-year weekly chart we see that the price of the shares from July, 2009, to now has been a series of bounces on an upsloping trendline (green). We are only interested in the points at which the price touches the trendline. These points occurred in February and August of last year and again this week. By analyzing price behavior and indicators from those periods we should be able to deduce what the probable scenario is for the near future.
A vertical green line has been drawn through each of the points so it is easy to compare price and indicator reactions at those times.
February/10 and Aug/10
Price: In both cases the price made an immediate bullish reversal and continued to climb to a new high 4-5 months later.
RSI: In both cases the RSI bounced up off the support at 53% and continued to climb toward the 70% level.
Volume: In both cases the average volume turned bullish and over time tended to rise as the price rose.
Slow Stochastics: In both cases the %K (black line) bottomed and reversed upwards and crossed above the %D (red line) which also bottomed and reversed exactly at these price reversal points.
Chaikin Money Flow (CMF): In Feb/10 the CMF value was about zero and in Aug/10 the value was about .30, so the actual CMF level appears to have little bearing on price behavior but obviously a rising CMF value at a reversal point will have a positive effect.
Today
Price: This week’s candle so far is a doji, indicating indecision and is right on the trendline.
RSI: The RSI is sitting on the 53% level support and flat.
Volume: The volume is bullish and although this is showing only 3 days volume it’s almost equal to last week’s.
Slow Stochastics: The %K is starting to flatten and the %D is still pointing down.
Chaikin Money Flow (CMF): The CMF value at 0.102 is about twice that of last week.
Outlook: The price pattern and the indicators replicate the two previous patterns after Feb/10 and Aug/10 and point to a probable and imminent share price reversal.
Thanks John for the valuable insight. I can get a feel for what is happening from looking at my portfolio, but this very logical explaination takes the cake, and slows the worry. George
Comment by George Helm — January 27, 2011 @ 6:30 am
Hi guys. Has VGN broken down technically?? Seems they are seeing lower, lows and lower highs during the daily trading. Is this a VERY bad sign, or still consolidation? With the news of an advanced gold property acquisition supposed to be coming, I’d think the market would be all over this stock. Thanks for your comments.
Comment by John — January 27, 2011 @ 8:16 am
Trying to decide whether to invest in Sidon or Currie Rose. Sidon is more diversified and the financials look stronger. Can you suggest further research that I can do for my due diligence? Both look to have a buy window right now. Thanks. Andrew
Comment by Andrew — January 27, 2011 @ 8:29 am
I would suggest looking at the technicals for each, and it depends what your timeline is. Currie Rose is certainly in oversold territory and in an area of strong support just above its 200-day SMA. It is certainly due for a decent bounce but it’s probably a few months away from another possible big run. Sidon has declined to an area of strong support and still has a rising 50-day SMA, which CUI does not…..I can’t advise you one way or the other – there’s no way of telling who will come up with better drill results….I will say this, though….I really do like CUI’s Sekenke Project….right beside two former high grade mines…
Comment by Jon - BMR — January 27, 2011 @ 9:13 am
Hi John
On the VGN weekly chart the 50% Fib. retracement level for the Sept. to Dec run-up is at 25c. This is a perfectly normal retrace. The Slow Stochastics has the %K at 48% and looking to possibly reverse and cross up above the %D. The CMF is green, slightly bullish at 0.6 and the trend is still bullish even though the trend strength is weakening. This is normal. Nothing bearish here.
Comment by John - BMR — January 27, 2011 @ 10:18 am