GLD and SLV: When and Where to Buy

07/22/2011 11:08 am EST


Thomas Aspray

, Professional Trader & Analyst

Expect short-term pullbacks in these precious metals ETFs to set up good buying opportunities in the week ahead. Here are the key price levels to watch for each fund.

Monday’s close above $1600 in the August gold futures contract got the attention of many investors and traders, but instead of reacting bullishly, there were quite a few who were taking profits on some of their positions.

Even more surprising was that some were even looking to trade the expected pullback while remaining bullish for the long term. Apparently, some think the recent surge was a blow-off top, but technically, the charts suggest that we just resolved the flag formation, which is a classic continuation pattern.

Experienced traders also know that trading against the major trend has wiped out its fair share of trading accounts.

The volume analysis supports this viewpoint, as it confirmed the recent breakout and the weekly on-balance volume (OBV) has continued to make new highs with prices. This has clearly been a year for sticking with the weekly trend analysis, as the short-term swings have been difficult to trade. For example, on July 1, the SPDR Gold Trust (GLD) gapped down to support, and then on July 5, after the holiday weekend, gapped higher, marking the start of the recent rally.

Certainly, if your long position is too large to let you sleep at night, reducing it when prices are rising is a good idea. Otherwise, do not try to time your core positions while the monthly and weekly analysis remains positive.

My short-term analysis for gold does suggest a pullback that could carry into next week, and John Person, an expert in seasonal commodity trends, tells me that gold typically bottoms in late July or early August. Therefore, traders or those not long GLD could get a good entry point next week, and the hourly Starc bands may help in identifying that entry point.

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Chart Analysis: The daily chart of the SPDR Gold Trust (GLD) shows the completion of the flag formation, lines a and b, as the daily Starc+ bands were tested for several days last week. The weekly Starc+ band is currently at $158.50 with upside targets from the flag formation in the $160-$162 area.

  • I have also plotted the Fibonacci arcs on the chart to give a time perspective. The initial arc is currently at $152 along with the 20-day exponential moving average (EMA) and the Starc- band
  • The former resistance, line a, which is now support, and the 50% arc line will be in the $150.70 area by early next week with the final arc in the $149.50 area by the end of he week
  • The on-balance volume broke through its resistance, line c, with prices. It is still holding well above its rising weighted moving average (WMA). The weekly OBV (not shown) did make new highs last week and is also positive

The hourly chart for GLD allows us to zero in on the key support levels to watch. There is initial support on the hourly chart at $153.70 with the trend line breakout level at $152-$152.50.

  • The 38.2% support level is at $151.80 with the 50% support at $150.30. The key 61.8% support is at $148.80, which I doubt will be tested
  • On the bottom of the chart, I have plotted one of my favorite momentum studies, the RSI3, which is a three-period moving average (MA) of a five-period relative strength index (RSI)
  • The horizontal lines note that the highs and lows in the RSI3 correspond nicely with prices, reaching either the Starc+ or Starc- bands on the hourly chart
  • For example, on July 18, GLD hit its high of $156.58 between 11:30 am and 12:30 pm when the hourly Starc+ band was being tested. The RSI3 peaked that hour at 87 and then declined to 83 the following hour
  • On Tuesday (July 19), GLD closed on the Starc- band with the RSI3 oversold at 20
  • The hourly chart has initial resistance now at $156.04, and if this level is exceeded, it will suggest the correction is already over

NEXT: Latest Chart Analysis for Silver ETF SLV


Click to Enlarge

The iShares Silver Trust (SLV) rallied close to the 50% retracement resistance at $40.10. The daily Starc+ band is at $40.70 with the 61.8% retracement resistance at $42.05.

  • The daily OBV did break out through resistance, line b, along with prices. The weekly OBV has turned up but is still below its weighted moving average
  • There is next support on the daily chart at $36.50-$37, which corresponds to the 20-day EMA and the former resistance, line a
  • There is additional support and the daily Starc- band in the $36 area. Key support is now at $34
  • From a Fibonacci time analysis standpoint, the correction should be over by the middle of next week

The hourly chart of SLV is set up the same way as the hourly GLD chart. The 38.2% support level is at $36.90 with additional chart support at $36.70, line c. 

  • The 50% retracement support is at $36.10 with the 61.8% support at $35.30
  • The correlations between the tests of the Starc bands and the RSI3 have also been highlighted on the chart
  • The RSI3 is trying to turn up after Thursday’s close and is well below overbought levels

What It Means: The technical outlook for the SPDR Gold Trust (GLD) is much more positive than that of the iShares Silver Trust (SLV), where the weekly analysis is still negative after silver’s May plunge. A pullback in GLD going into the middle of next week should set the stage for a move to further all-time highs.

How to Profit: For GLD, go 50% long at $152.34 and 50% long at $151.46 with a stop at $147.47 (risk of approx. 3.1%). Sell half the position at $159.76 and raise the stop to $151.84 on the remaining position. Of course, it is possible that we will not get such a deep correction before the uptrend resumes.

I have no formal recommendation for SLV at this time, but traders could look for a decline into the $35.50-$36.90 area to buy, using a stop under $34.

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