Gold: GLD

What's Gold been up to?

With every stock chart, I start with a long-term big-picture view. Here is the 10-year weekly chart of the price of gold as represented by the GLD ETF (symbol: GLD).

A “weekly” chart is a chart where each bar represents a week of time:

The price of GLD peaked in 2011, then traded sideways from 2011 to 2013 before GLD crashed through support in 2013 and hit a low in late 2015.

From 2013 to 2019, GLD formed a massive 6-year Head & Shoulders Bottom pattern. Here we see what patience means: 6 years for a classic long-term bottoming pattern to develop. Then the decisive upside breakout in June 2019.

6 years.

Of course not all patterns are massive long-term patterns such as this. But the longer the pattern, the more reliable the signals and breakouts tend to be (but of course not a guarantee).

Okay. What has the price of GLD done since the June 2019 breakout?

For that, let’s look at the daily chart of GLD (a daily chart is where every green or red bar represents a day):

Next, let’s zoom in and focus on the last 6 months:

So one interpretation of the price action is that GLD is currently testing the lower horizontal boundary of the 6-week descending triangle from which it broke down from.

If GLD surges above the boundary and stays above, then we’ll re-evaluate.

Or GLD may break down again after testing (as it is doing now) the horizontal lower boundary of the descending triangle.

Nobody knows what will happen. Anybody who tells you he or she knows what GLD will do does not know what he/she is talking about. Or is lying.

Only thing you can do is control risk.

If you want, you can short some GLD shares.

Shorting means you are betting that a stock will go down in price.

Shorting shares involves additional risk although it need not be financially ruinous. The key is to control risk, which includes trading money and risking an amount that you can afford to lose.

You should study on your own how to short stocks. There are plenty of resources on the Internet. You can also call your broker and ask them to explain the process to you. I was intimidated about shorting stocks, but I learned about it and now I am comfortable either going long (buying shares because I’m betting prices will go up) or going short (shorting shares because I’m betting prices will go down).

No need to rush. Take your time to learn. Only do what you are comfortable doing (and only with money that you can afford to lose). The financial markets will always be there. Take your time to learn and get comfortable. Remember, PATIENCE!

Let me offer an alternative interpretation of the current price action of GLD:

The bearish descending triangle can “morph” into a bullish descending wedge.”

A “bear” market is when prices decline.

A “bull” market is when prices increase.

Every chart pattern can fail. Every chart pattern can morph (change) into a different pattern. In fact, you should always assume that a chart pattern will either fail or change into something completely different.

And this is the way it should be.

After all, opinions differ. Not everyone uses classical charting to trade or invest. Every dollar you make in the market is a dollar someone lost. Every dollar you lose is a dollar that someone earned.

My opinion is that GLD is in a long-term bull market (prices will increase in the next several years). This doesn’t mean GLD won’t see sharp price declines. We may be in one of those declining periods now.

BUT here’s the thing. I could care less about whether my opinion is correct.

Again, nobody knows what prices will do. Chart patterns are only tools to helps us manage risk by, for example, providing particular entry and exit points that are themselves based on nothing but your opinion.

The only thing I can do is to control my risk if I decide to enter a trade.

We’ll talk more about possible specific entry points in the next newsletter. Until then, take care.

Note: If you want to learn more about chart patterns in addition to reading about them in this newsletter, check out my book Trading Stocks Using Classical Chart Patterns ( available on Amazon). I’m very proud of this book as I think it is a thorough and clear introduction to chart trading. The book discusses specific entry and exit points for dozens and dozens of chart patterns.

Disclosure: I own shares in GLD and also own shares in GDX and GDXJ, which are ETFs that own shares in various gold and precious metals mining companies. I also own shares in individual gold mining companies such as HMY, KGC, and NG.

Disclaimer: Everything in this newsletter is for informational and entertainment purposes only and is not to be considered professional advice of any kind. All statements and opinions in this book are not meant to be a solicitation or recommendation to buy, sell, or hold securities. Trading stocks and investing involve risk and may result in financial loss. All trading and investment decision you make are your own.