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.
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
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