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ETF: Set Up for Golden Summer

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (The FRED Report) -- In Thursday's FRED Report conference call (listen in here), one of the biggest questions was on the precious metals markets. We think that commodities in general (and gold in particular!) are bottoming, and could have a significant summer rally.

We show the daily chart of GLD (SPDR Gold Shares) below.  The daily stochastic is up and suggesting higher prices. Not shown is our accumulation model, which also suggests higher prices are in store.

At the same time, a look at the weekly GLD chart suggests an inverse Head and Shoulders (a bottoming formation) is being formed. Notice how the stochastic is moving down, while price is, so far, remaining above prior lows. This formation will remain valid unless 154 is broken. It also suggests some more consolidation, choppy up and down trading, is in the cards. Should this occur, the stochastic on the weekly will come down into the buy zone, and set up the next run to the upside.

One of the interesting things about the respective positions of the daily and weekly charts is that the mid-150's on GLD is important in both cases. In fact, the daily chart could stage a temporary false breakdown, while the weekly pattern remains alive. Indeed, we think that this is a likely scenario -- we would not consider selling GLD unless 154 is breached.

Bullish sentiment on gold is falling, and several clients are suggesting that the up move in the metal is over, although the long-term uptrend remains intact. In turn, we believe GLD should be bought by speculative accounts, as the weekly pattern is clear enough, and the risk (a move below 154) is fairly obvious. While this is not for the faint of heart, it could be an interesting trade as long as readers manage the risk with stops.

At the time of publication Fred Meissner had no position in the ETFs mentioned above.

Disclaimer:  

This article does not constitute a solicitation or offer to buy or sell securities.  Interested parties are advised to contact the entity with which they deal if they desire further information.  No representation is being made that the information herein is accurate or complete.  Any opinions or estimates contained in this communication represent the judgment of Fredco Holdings, Inc. at this time and are subject to change without notice.  Fredco Holdings, Inc, its employees, officers, directors, principals, agents, affiliates or advisers may from time to time provide recommendations with respect to, acquire, short sell, hold or sell a position in, the securities or instruments named or described in any report or information being provided herein, provided however that no buying or selling activity will be taken with respect to a security referenced in a report by such parties within three days of such report's publication.  The information contained herein was prepared by The FRED Report, which is solely responsible for the contents of this report.   

More detailed information, including actionable alerts, is available to Fred Report subscribers or 30 day free trial at www.thefredreport.com.

Fred Meissner is founder and publisher of The Fred Report. Fred is a CMT and past President of the Market Technicians Association (MTA). He recently left Merrill Lynch's Market Analysis Department and Sector Strategy Department to form The Fred Report.  A detailed bio is here: Fred Meissner.

Fred Meissner is founder and publisher of The Fred Report. Fred is a CMT and past President of the Market Technicians Association (MTA). He recently left Merrill Lynch's Market Analysis Department and Sector Strategy Department to form The Fred Report. A detailed bio is here:Fred Meissner.

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