Last summer’s rally in gold and the gold miners coincided with a strong seasonal period, and after the dismal performance in the first half of the year, a rally was overdue. The rally was impressive as the SPDR Gold Trust (GLD) rallied 20% from the late-June lows to the late-August highs.
In late July’s Is Gold's Rally a Bull Trap?, I shared the reasons why I thought the rally in gold and the SPDR Gold Trust (GLD) was a bull trap. GLD triggered a weekly low close doji sell signal in the early part of September suggesting that the rally might be over.
This chart I presented on November 5 subsequently got quite a bit of attention as the technical evidence suggested that the bull trap was ready to close. My high degree of confidence in this analysis came from the classic flag or continuation pattern (lines e and f) that had formed in GLD since April of 2013.
This type of formation can present some of the best trading or investing opportunities, and that is why they are my favorite chart formations. They allow one to clearly define both the risk, as well as the potential reward, and the market will give you clear signals when you are wrong.
The high in August 2013 (point 2) just reached the 38.2% Fibonacci retracement resistance from the high at $174.07. This, therefore, was a key level of resistance. As prices declined from the highs, the daily on-balance volume (OBV) began a new downtrend and by October the OBV was acting weaker than prices.
The rally in the OBV from the June lows had been weak, which was one of the main reasons I thought that this rally was a pause in the downtrend, not an important low.
Let's look at how these patterns can improve your trading?
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