Monday, December 12, 2011

Some Caution Now Technically on the Gold (GLD) Trade

Please note I am using the Gold ETF (GLD) rather than the commodity as has a 1 day delay on the actual underlying.

Gold is acting punk today - a lot of people are trying to find reasons why.  I thought perhaps this would be due to Monti remarking Thursday morning that a bazooka of European QE is not coming anytime soon, but if so you would have seen more weakness the previous 2 sessions.  Could be some liquidations, could be a lot of factors - I clearly don't know.  But the one nice thing about technicals are the fundamentals really don't matter much to assessing what is happening.  And right now we're flashing some caution flags.

It's still not a red zone situation as we still see the metal over the 200 day moving average, plus the late Sept and Oct lows, but it would definitely be something to have a yellow flashing warning light focused on.  There was a huge 'triangle' formed by a series of lower highs and higher lows.  We've broken out of that triangle to the downside.  A much shorter time frame example of this was seen in the S&P 500 just a few weeks back and we promptly saw a 8%ish loss in that index.

I've been a long time proponent of this trade from a 'debasement' perspective (rather than inflation), but I would certainly at this point be looking to be watching much closer as there is some potential for a breakdown if things continue down this path in the next month or so.  One to keep an eye on.

(and if you don't believe in the technical mumbo jumbo I'm spitting out, I can respect that - but also respect the fact a lot of the 'fast money' types do follow this stuff, and it tends to self reinforce)

No position

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