Extreme bullish sentiment and technical indicators signal that a pullback in gold and popular ETF GLD could lie ahead, and a covered-call option strategy may be the best way to profit.
The more-than-20% gain in the SPDR Gold Trust (GLD) since the July 1 close has been relentless, and domestic and global news has provided daily reinforcement that gold is the only “safe” investment.
As gold has powered to several new highs over the past two weeks, the only thing missing has been analysts who are voicing even a short-term bearish outlook for the yellow metal. In fact, it has almost become un-American to question whether gold will ever stop going higher.
It is important to separate the short-term from the long-term trend analysis. The monthly on-balance volume (OBV) analysis of both GLD and the Comex gold futures is still pointing higher, as it has been for the past seven years. The same is also true for the weekly analysis, so one might ask, “What’s the problem?”
The Starc band analysis can be used to identify high- and low-risk areas to buy or sell based on daily, weekly, or even monthly time frames. When a market reaches a historically high-risk buying area using both the weekly and the monthly analysis, the odds of some consolidation or a more significant pullback are very high. From a money-management point of view, this can allow even long-term investors to protect profits by hedging their positions.
Chart Analysis: The monthly chart of the SPDR Gold Trust (GLD) shows that we are currently trading above the monthly Starc+ band at $173.30. The monthly Starc- band is at $133.56.
On the weekly chart of GLD, I have highlighted those times when the weekly Starc+ band analysis has identified a high-risk level for buying.
NEXT: Latest Daily Chart for GLD; How to Profit