Gold ETF Chart: Beware Reversal

By Chris Vermeulen of TheGoldAndOilGuy.com

So far this week has been generous, with our commodity ETFs moving higher, other than natural gas, which is clearly in a bear market. Each one of the commodity ETF trading charts here is at a different stage. It will be interesting to see how things unfold in the coming weeks.

Trading ETFs is very rewarding when done properly; using multiple time frames to plan your entry and exit points is crucial. My main focus is on the weekly and daily charts, but I use a 30-minute intraday chart when the time comes to actually pick an exact buy or sell point. I have provided both the weekly and daily charts, so you can see how the same ETF looks completely different in the two time frames.

Gold ETF Trading

The weekly chart shows a nice multimonth rally, but SPDR Gold Shares (GLD) is now starting to go parabolic (straight up). When this happens, I start tightening my stops so that I can lock in maximum gains. Now jump over to the daily chart and notice that gold has rallied longer than the previous move in early October. It looks overbought and ready for a pullback.

Pullbacks on strong rallies like this tend to be hard and fast, as stop orders get triggered, sending prices tumbling down on heavy volume. My general thought is, five days up in an investment is given back in one down day. This is why I scale out of positions when they are looking long in the tooth and ready for profit-taking.