Gold and gold stocks have seen an incredible run so far this year, providing ample rewards to all who were involved. After more than doubling in many stocks and providing a 30% gain in the bullion itself, there are neoclassical signs suggesting that another pause is beginning to form – a refreshing pause that allows wise traders and investors to build larger positions most likely for even more gains to come.
Let’s take a look at the charts. On the short-term time frame for SPDR Gold Shares (NYSE:GLD) we have now have two failure bars in a row with the last being a bearish engulfing candle. Those are typically not what you like to see if you are bullish.
On the intermediate-term time frame the overall bullishness is quite evident, but being bullish doesn't necessarily mean "up" forever - at least not if it’s going to last for a long time. What you want is for the metal to stair step higher, surge, retrace, build a base and move on higher. Though I wouldn't call this a fever yet, it's been an exceptional move already, so one has to be cognizant of the retrace potential.
Some short-term cold water on this feverish run higher would actually be beneficial - not long-term detrimental. So with the short-term charts (daily) suggesting more immediate weakness, do the longer-term charts agree? The answer is to some degree on the weekly charts and very much so on the monthly charts. Here’s the weekly view:
First off, these charts remain very bullish, but after breaking higher from the lower range, once more there is a surge in volume which typically results in a digestion phase (up and down choppy action). As such, one should not be at all surprised if prices retrace to the lower end of the upper range or even back into the top end of the middle range.
It is this range action that offers the best opportunity for longer-term investors, for it will allow one to "trade around" a core position and actually increase the size of that position while waiting for the next larger leg forward. And, make no mistake, legging forward remains the likely path when you consider the monthly (long-term) chart.
It is on the long-term time frame that overall bullishness is best understood, since this chart has officially transitioned trend from bearish to sideways. Unfortunately, the current price area is likely to prove more difficult an area to scale than those that came before, for there is the low currently being tested of a high volume, wide price spread bar from the month of May 2013.
That was the breakdown bar from the higher range and ushered in significantly lower prices for almost three years.
