All that glitters in the market hasn’t included gold stocks in recent weeks. But following a pullback, is the SPDR Gold Shares (NYSEARCA:GLD) ready to give seasonal cheer and profits for GLD investors? Let’s take a look at what gold bugs and gold bears are saying, and more importantly, what the price chart is telling opportunistic traders in today’s market.
It wasn’t long ago when gold bugs and the momentum crowd were getting decidedly upbeat on gold stocks. Along with the precious metal, shares of the ETF rallied to six-year highs by early August as part of a sizzling summer-long rally. At the commodity’s peak a month later, GLD delivered a stunning 22% return in just over three months.
The determined price action in gold stocks was certainly headline-worthy. And for a short while it was veritable financial news as GLD’s performance eclipsed a still-glittering broad-based rally in equities. The buying pressure in gold stocks wasn’t for naught either.
Growing concerns over the U.S.-China trade war, indications of a weakening global economy, and supportive interest rate cuts by several central banks backed the rally in gold stocks. Just when the party appeared to be getting started, like clockwork a top was formed in GLD.
Now gold stocks’ drivers quieted or altogether discarded the commodity off by 7%. Even greater bearish shock tactics are causing a ruckus among gold bugs.
On the eve of Thanksgiving Zacks’ Kevin Cook was spied cutting into the hearts of the hard asset’s bulls. According to the article gold is headed to zero. Yes, $0.00. The forecast is tied to the eventual interstellar mining of metals-rich asteroid Psyche. Moreover, at its core the article is a fanciful piece of bait which drew more than 300 reactions.
The impressive and vocal interest from gold traders is more than you’d find in a hotly-contested article of battleground stocks such as Tesla (NASDAQ:TSLA), Roku (NASDAQ:ROKU) or Netflix (NASDAQ:NFLX). In my opinion the article achieved its real objective. And rather than get mad, even-keeled investors should be mindful of the GLD price chart and a gift-wrapped long readying for delivery this holiday season.
GLD Stock Monthly Chart
Source: Charts by TradingView
Aside from capturing a market-beating return at GLD’s recent high, the price action is also technically significant for a larger bullish move to develop in 2020. The rally broke above key lateral resistance to form a higher-high pattern which tested the 50% retracement level from gold’s 2011 high to 2016 low. As much, investors should monitor today’s weakness in gold stocks as a counter-trend opportunity to purchase.
My advice is to watch gold stocks for a low to form on the monthly chart. With November just completed, one long strategy now in play is to buy shares above the November high. As long as the prior month’s low remains intact, this reversal entry will have price confirmation once the three-month consolidation is complete.
Should a rally trigger a long in GLD the 62% retracement level is a logical spot to lock in partial gains. But a bullish move similar to this summer’s price action could reasonably take GLD towards $170 – $175 and ever closer to a massive breakout in the commodity.
Alternatively, with the monthly stochastics indicator in a riskier overbought position, the possibility for gold stocks to provide a lower counter-trend entry closer to technical support is increased.
Trend and Fibonacci supports tied to the September 2018 low come into play in the area from $129 – $133. Here too, confirmation for buying into GLD is important. As important, setting a stop beneath any future pattern bottoms makes sense so today’s investors can avoid becoming gold bugs during less favorable times.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.
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