Today's Hot Topics   ▲  |  ▼

Probably the most memorable Starc band signal from 2011 was in the SPDR Gold Trust (GLD) last August. (See "Red Flags Precede Gold's Drop.")

On August 17, GLD traded above the monthly Starc+ band that was at $173.30. The August high was $184.82, and then in early September, GLD made a higher high of $185.82, which was also above the monthly Starc+ band (point 3). Since 2006, this had only happened twice.

Click to Enlarge

In April and May 2006, GLD also traded above the monthly starc+ band (point 1) before dropping 23.8% from the May highs. GLD also traded above the monthly starc+ band for three months during the period from January through March 2008 (point 2), when it rallied 20%. This was followed by an eight-month correction that took GLD 34.3% lower, from $100.44 to $66.

GLD is currently just 15.9% below its September highs, as the decline so far has not been too severe. The monthly on-balance volume (OBV) through the end of November was acting stronger than prices, which is consistent with a positive long-term trend.

Click to Enlarge

In August and September, GLD stayed above its weekly Starc+ band for three weeks, which was also a strong warning signal. This last occurred in GLD in April 2006 when prices exceeded the Starc+ bands for five weeks.

Once prices turned lower (point 1), the drop was quite dramatic, as it took only five weeks to drop below the Starc- band, point 2. During the week ending November 10, 2007 (point 3), gold's high at $848 slightly exceeded the Starc+ band at $837, and for the next six weeks, gold moved sideways, testing the six-period MA before resuming its uptrend. This is a very typical pattern.

Gold had reached a low of $773, which was $75 below the high. By the latter part of March 2008, gold reached $1033 (point 4), peaking just below the Starc+ band at $1043. For the rest of the year, gold moved back and forth between the Starc bands and tested the Starc- band three times, culminating in the October 2008 drop (point 8).

Gold rallied steadily from these lows and by late-February 2009, it approached the Starc+ band (point 9), which turned out to be the beginning of a triangle formation. Frequently, a test of either the Starc+ or Starc- band will be followed by the formation of a continuation pattern before the trend resumes.

NEXT: Study Another Past Example in Gold