This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Gold: Eyeing the Climax Bottoming Phase

TheStreet Premium Services

A complimentary preview
of Options-Profits Previews

Gold! Just the sound of it gets the heart pumping! Thus, if you are going to trade the yellow metal you must do so with the knowledge that your emotions are going to be challenged in the process. Personally, I keep emotions and trading as far from each other as possible.

Almost every trader has an opinion about the current and future price of gold. You are about to read mine in short order. But first, know that I have been a gold ( SPDR Gold Trust ETF (GLD)) grizzly bear since last year.

I patiently waited for a bearish pattern to develop, one that would offer the edge to the gold bear.

That pattern appeared on my charts in February ( see: 3 Peaks and the Golden-Domed House). GLD had coiled back then, around the $160 level. The RSI and slow stochastic had both turned down, signaling (for me) that the odds highly favored the short side player in GLD (gold).

Experience has taught me to stay with a successful directional bias until either that bias goes off the proverbial tracks or the set-up exhausts itself. Thus GLD is still in my crosshairs, the end game and climax for this mega-bearish cycle the target. I think of technical analysis as part science, part science fiction. And much akin to astrology, the analysis of what any chart portends is: 1) in the eye of the beholder and 2) relative to where the analysis begins in time and place. The key inflection points in value are only important relative to where the profitable analysis began.

Thus, I instantly negate all opinions from any "expert" who did not get the critical and initial moves correct in the first place! That will not stop the plethora of such "expert" opinions that you will find on a daily basis throughout the financial media. As for GLD I know I got "it" right back in February. I have that quiet confidence to make the next attempt, which in this case is the quest to find the price level for the climax of this GLD bear cycle.

To begin this process I am using the fall period of 2005 when GLD was trading around the $45/share level. Add that 45 to the top hit in August of 2011 of about $185/share. So, $45 + $185 = $230. Divide $230 by 2 to get $115. That is the half-way point between the high and low for GLD over this 8 year cycle.

Remember, I keep things simple. However, I also know enough of the time that the KISS method pays off. As for all the "experts" opining about the bottom you might Google this phrase: "bottom for gold". Read the myriad of opinions that have already erroneously attempted this feat. Most likely what they all have in common is that every one of them did not call the top in GLD (gold).

The $115 level makes trader-sense to me because: 1) 50% retracement over a good deal of time has historical merit; 2) short covering as well as new buying greed should begin to grow roots around that number; 3) new short sellers will probably be positioned in size by then, confident that gold will soon break down to $1,000 (for GLD, $100); 4) the gold miners will probably have dramatically cut new production plans, reducing the overhead future supply; and 5) this bottoming call of $115 as of now has little or no company that I know of.

Note: I posted a trade on GLD yesterday on OptionsProfits on GLD yesterday on OptionsProfits. The trade is a 100% controlled risk trade.

OptionsProfits can be followed on Twitter at

EXCLUSIVE OFFER: Jim Cramer's Protégé, Dave Peltier, only buys Stocks Under $10 that he thinks could potentially double. See what he's trading today with a 14-day FREE pass.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
Top Rated Stocks Top Rated Funds Top Rated ETFs