Determining when not to trade something can be as invaluable as identifying attractive trade candidates. Gold is one of the biggest gainers across futures markets this morning, raising the question of whether it’s time to position for an oversold bounce.
At miAnalysis I focus on exchange traded products and distinguish between swing trades meant to last two to 10 sessions and position trades lasting two to 12 weeks. GLD could be good for a long swing trade, especially since the Dollar Index looks stretched. But there isn’t any technical evidence suggesting it’s time for position traders to start buying.
THE CHART
Gold shows lower lows and lower highs indicating selling at lower prices and into short-term lifts. There isn’t any basing activity —a period of churning after a downtrend in which control shifts to the bulls. And lower prices have been confirmed by lower momentum readings in averages on RSI. The nearest demand zone is 1051-912, derived from the congestion spanning November 2007 to December 2009.
With weekly RSI averages below 30, indicating a point of seller exhaustion should be coming, that range would represent an attractive reward-to-risk scenario for long entry if tested.
BOTTOM LINE
In the meantime, don’t scratch that itch to buy.
