• Gold set to rally?

    by  • November 6, 2012 1:11 pm • Charts to Watch, Quick Hits • 0 Comments

    The SPDR Gold Trust (GLD) is having itself quite a day, rallying more than three points, or just over two percent. A couple observations have caught my eye, and makes me lean bullish ahead of the election into year end.

    For example, the pullback in the GLD that began in early October was contained at the 320-day moving average. Yes, I know, a very odd moving average, not popular among technicians. But, note how this trendline marked a key bottom in late-December 2011. And, after a break below this trendline in May 2012, the GLD went sideways for three months, as the 320-day moving average marked a short-term peak in June.

    Also, per the second chart below, note in late-October how the 20-day buy (to open) option volume began  increasing from low levels. I have noticed that during the past few years, when buy (to open) option volume is increasing on the GLD, gold has fared well. And when buy (to open) volume is decreasing, GLD has either declined or traded in a range. My theory is when buy (to open) GLD option volume is increasing, it is evident that bulls are in accumulation mode, using GLD calls to speculate on higher prices, or GLD puts to hedge a long futures position.

    GLD offers an attractive risk-reward, as you can target $185, the September high, and close your position if GLD trades back below its 320-day moving average.

     GLD with 320-day moving average – plus, trendline breakout 

    20-day buy (to open) GLD option volume

     

    About

    Todd Salamone is a graduate of The Ohio State University. As Senior Vice President of Research, he oversees the strategies and analysis used in supporting Schaeffer’s various option recommendation services. He is the author of the company’s weekly e-newsletter, Monday Morning Outlook, and a contributor to Bernie Schaeffer’s SENTIMENT magazine. With more than 18 years of trading experience at his command, Todd manages numerous alert services for Schaeffer’s, and has introduced many sentiment-based indicators to its subscribers. Todd has presented option strategies to retail investors in cities throughout the U.S., and is a frequent commentator on financial markets via print, radio and television, including CNBC, The Wall Street Journal, and MarketWatch.

    http://www.schaeffersresearch.com/

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