Archive for September, 2010

Is The Largest Gold ETF (GLD) Nearing A Top?

Posted in GOLD (GLD) on September 27th, 2010 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

When looking at weekly bar charts, the largest gold ETF (GLD) is nearing a test of important resistance in the form of a “rising wedge” top that currently sits at the $130.50 level. This roughly equates to the $1,335 level for “spot” gold. Overbought technical conditions are also present on weekly charts.

It is interesting to point out that “rising wedge” patterns tend to occur in general downturns or bearish trends, and typically end with a bearish breakdown 2/3’s of the time. As a result, they are thought of as bearish “continuation” patterns. In this case, however, the 2-year “rising wedge” pattern that GLD formed is clearly happening at an all time price high for gold, a clear difference. It is also the norm that trading volume tends to dry up when price is approaching the apex of a “rising wedge”, but picks up during a breakdown. Although trading volume is well below levels seen during the April/June period that accompanied a 16-point rise in GLD and a 200-point plunge in the S&P 500 Index, it has been steady during the summer months with a distinct rise scored since the release of last week’s FMOC monetary policy release.

From a fundamental stand point, one of the crucial reasons that GLD has been rising is due to the theory that the greenback will likely become debased as attempts to grow base money supply increase. Last Tuesday’s FOMC report appeared to formally solidify this expectation with overt hints of another round of quantitative easing.

The true test of gold’s strength will likely come as GLD approaches the $130.50 level. A solid break above it, if accompanied by a jump in trading volume, should favor a bullish outcome and an extension to new all-time highs. A failure to punch solidly above $130.50, however, could result in a liquidation of long positions that could result in a nasty retreat.

The CBOE Volatility Index (VIX) Searching For Support

Posted in CBOE Volatility Index (VIX) on September 20th, 2010 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

After spiking sharply higher in April during a nearly 200-point 2nd quarter plunge in the S&P 500 Index, the CBOE Volatility Index (VIX) has since drifted back to much more tranquil levels. The decline in market volatility was accompanied by a more than 100-point recovery in the S&P 500 index, but a steady falloff in daily trading activity as well. Adding to this mixed view of the summer recovery’s strength was the continuation of net outflows from equity mutual funds and EFTS into bond funds.

Although it is impressive that the major equity indexes have been able to hold steady amidst such net outflows, the upcoming November elections will likely keep investors’ funds in safe places until the political landscape becomes a bit clearer. No doubt, the economy will face a number of unsettling headwinds no matter what happens in November. Among them include: unemployment levels; the housing market; taxes (both personal and corporate); the inflation/deflation debate; and international trade. Worries over the possible effects of another round of quantitative easing should remain a factor as well.

From a technical standpoint, the CBOE Volatility Index (VIX) appears to have more downside ahead of it, despite oversold conditions that currently exist. With the VIX closing just above the $22 level, it is important to note that primary trend line support currently sits at $16.75. In addition, there is “cross” trend line support now seen at $19, but this measure declines somewhat over time on weekly charts. Another month or two of pensive trading activity could well see this “cross” trend line and its primary support (which rises slightly over time) converge near $17 prior to the election. If reached, that level should represent a very attractive buying opportunity.