Commodity ETFs Begin 2009 in Great Shape

In recent months, both spot gold and gold mining stocks and ETFs have traded erratically within a wide range, making it difficult to stay with any positions. However, this situation may be changing.

After a 15% run from Dec. 8 to Dec. 17, SPDR Gold Trust (GLD - commentary - Cramer's Take) ran into resistance of its long-term primary downtrend line. But rather than retracing deeply, GLD pulled back only nominally in the days that followed, and its trading range subsequently tightened up. Over the past week, while most of the stock market has been in holiday hibernation mode, GLD stealthily resumed its newfound strength, closing above its 200-day moving average and breaking out above key resistance of its five-month downtrend line:

SPDR Gold Trust (GLD) TradeStation

GLD is beginning the new year at a multimonth high closing price and above resistance of its long-term downtrend line; the ETF's next target should be its September/October highs around $91 to $92. Prior resistance of the five-month downtrend line should now act as support on any pullback, providing for a low-risk buy entry.

If you're already long, consider giving your protective stop a few points of "wiggle room" below the trend line. If you're looking for more bang for your buck, you could consider buying the PowerShares Gold Double Long (DGP - commentary - Cramer's Take), which provides leverage by tracking twice the percentage movement of the spot gold commodity.

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Alongside of spot gold, individual gold mining stocks have also been displaying bullish price action. Market Vectors Gold Miners (GDX - commentary - Cramer's Take), a popular ETF proxy of a basket of gold mining stocks, broke out above a tight band of consolidation and motored nearly 11% higher over the past two weeks. Overall price action has also been constructive, as the trading range of GDX has significantly tightened up from recent months.

Market Vectors Gold Miners (GDX) TradeStation

On the daily chart at right, notice how the 10-day moving average (the purple dotted line) acted perfectly as support last week. This commonly occurs whenever an ETF or stock enters into a steady trend:

Over the coming week, look for a potential breakout above the Dec. 17 swing high. If GDX powers through that resistance level, it will represent three significant higher highs and higher lows since its October 2008 bottom. I have been long since Dec. 26, when GDX moved above the high of its short-term consolidation, but I would consider buying the next pullback to the 10-day moving average as a secondary buy point. After GDX rallies above its Dec. 17 high, I will subsequently trail my protective stop higher to remove risk from the trade.

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At the time of publication, Wagner was long GDX and DGP.

Deron Wagner is the founder and head trader of Morpheus Trading Group. His daily focus is managing and trading the Morpheus Capital Hedge Fund, which he founded in April of 2004. He also teaches his trading methodology with The Wagner Daily, The MTG Stalk Sheet, and The Wagner Weekly newsletters.