Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold GLD ETF Time To Buy?

Commodities / Gold and Silver 2010 Jul 03, 2010 - 05:29 AM GMT

By: Guy_Lerner

Commodities

Best Financial Markets Analysis ArticleOn Thursday, the SPDR Gold Trust (symbol: GLD), which is the ETF that tracks the performance of gold, saw its worst one day performance since February, 2010. No one would deny that gold is in a bull market, but does this sell off represent a buying opportunity?


Figure 1 is a weekly chart of the GLD, and the pink labeled bars are negative divergence bars. In this instance, the divergence is between price (i.e., what you see on the chart) and an oscillator (i.e., like a stochastic or RSI) that measures price. A negative divergence means that price is going higher but the oscillator is heading lower. As I have chronicled on many occasions in the past, negative divergences signify slowing upside momentum at best and often times lead to a range in prices where the highs and lows of the negative divergence bar serve as the highs and lows of that range. They are not a harbinger of a market top unless there is a clustering of negative divergence bars and more often in a bull market they lead to higher prices.

Figure 1. GLD/ weekly

This past week's price action is producing a negative divergence bar in GLD, and this mini sell off has many wondering if this represents a buying opportunity or not. So let's construct a simple study. We will use weekly data of the GLD and execute all trades at the close; commissions and slippage are not considered. The first trade generated was in February, 2006. The buy rule is: 1) buy GLD on a weekly close when there is a negative divergence bar. The sell rule is two fold: 1) sell GLD on a weekly close below the low of the negative divergence bar; or 2) sell GLD on a weekly close above the high of the negative divergence bar.

So looking at figure 1, we buy GLD when there is pink bar and sell our position on a weekly close above or below the highs or lows, respectively, of that pink labeled price bar. Simple enough. I have labeled the buy and sells from the trades generated from this strategy.

Since 2006, there were 13 trades generated by this strategy. 69% or 9 trades were winners. In other words, if a negative divergence was present, there was a 69% chance that prices would close above highs before closing below the lows of that negative divergence bar. But remember this is what one would expect when being in a bull market.

The maximum adverse excursion (MAE) graph for this strategy is shown in figure 2. The MAE graph assesses each trade from the strategy and determines how much a trade had to lose in percentage terms before being closed out for a winner or loser. You put on a trade and if you are like most traders the position will move against you. MAE measures how much you have to angst and squirm while you are in that position. As an example, look at the caret in figure 2 with the blue box around it. This one trade lost 3.25% (x-axis) before being closed out for a 3.5% winner (y-axis). We know this was a winning trade because it is a green caret.

Figure 2. MAE Graph

Looking at all the trades from this strategy, we note that the 3 out of the 4 losing trades had MAE's in excess of 3.5%; these are the trades to the right of the blue line. These trades did not recover, so in all likelihood, a trade that loses more than 3.5% will be a losing one.

Other characteristics of this strategy include: 1) average time in a trade was 3.5 weeks; 2) the ratio of average win to loss is 2.46; 3) the RINA index, which is a measure of trade efficiency or which takes into account profit, draw down and time in the market, is a very robust 214; above 50 is considered good.

In summary, gold is in a bull market. The weekly chart shows a negative divergence bar. Negative divergence bars signify slowing upside momentum; however, in a bull market it pays to buy those divergences.

By Guy Lerner

http://thetechnicaltakedotcom.blogspot.com/

Guy M. Lerner, MD is the founder of ARL Advisers, LLC and managing partner of ARL Investment Partners, L.P. Dr. Lerner utilizes a research driven approach to determine those factors which lead to sustainable moves in the markets. He has developed many proprietary tools and trading models in his quest to outperform. Over the past four years, Lerner has shared his innovative approach with the readers of RealMoney.com and TheStreet.com as a featured columnist. He has been a regular guest on the Money Man Radio Show, DEX-TV, routinely published in the some of the most widely-read financial publications and has been a marquee speaker at financial seminars around the world.

© 2010 Copyright Guy Lerner - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Guy Lerner Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in