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The fact that the monthly on-balance volume (OBV) had confirmed the highs in September 2011 made me confident that a major top was not in place. As of the end of August 2012, the monthly OBV had moved back above its WMA which is a positive sign.

GLD made a low of $148.27 on December 29 (missing my buy level of $148.20), then rallied 17% over the next two months. The sharp reversal on March 1 and the poor volume on the rally suggested that the corrective period for gold prices was not over.

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In May, the sentiment had become more negative, which suggested the worst of the correction was over.

On June 8, after GLD had rallied to a short-term high of $159.20, I recommended going 50% long at $152.42 and 50% long $150.28, with a stop at $147.28 (meaning a risk of approx. 2.6%). This first buy level represented a point between the short-term 50% and 61.8% support level, while the second level was just above the psychological support at $150.

I wanted to give the position enough room under the December low of $148.27 so as to not get stopped on a quick downdraft. I was concerned that a decisive break of the December lows could lead to a test of the major 38.2% support level.
 
In the past week, GLD has overcome the downtrend on the daily chart and completed the triangle or flag formation (lines a and b). The ability of GLD to overcome the 38.2% Fibonacci retracement resistance sets the next upside target at $167, which is the 50% retracement level.

The key 61.8% level is at $171.50, which is not far below the significant chart resistance from November 2011 and February 2012 in the $174 to $175.46 area. The daily OBV has broken through the resistance (line d) that goes back to last November. The weekly OBV (not shown) also indicates that an important low is in place.

A daily close above the 50% and of course the 61.8% retracement resistance would further support a move to new highs. The 127.2% Fibonacci retracement target on the monthly GLD chart (see figure 1) is at $196, and that is where I would be looking to take some partial profits.

GLD is a tough buy here, as the first minor support is in the $157 to $158.50 area (line c) with further levels at $154.80. Therefore, the risk of buying now is a bit too high for my liking. If the rally stalls near current levels, a setback into this support zone over the near term should set up a new buying opportunity. Sentiment has quickly turned more bullish, so this is a possibility.

In my opinion, it is more likely that GLD will test stronger resistance before the first rally phase is completed. The next daily sell signals should be followed by a correction back to the 38.2% to 50% support level, where additional buying can be done.

Next: Using the longer term OBV and RS analysis