Based on Friday’s close of $131.66, the SPDR Gold Trust ETF (GLD) has rallied $18.58 or 16.5% from its recent swing low of July 28, 2010. Although, not clear yet, it looks like it’s starting to run out of steam and maybe getting close to a more significant retracement than seen in the past couple months.

Last week GLD created a large Bearish Engulfing reversal candle on Thursday, October 7, on very high volume – the highest since early May 2010.

This short term bearish behavior was exhibited as GLD broke through the top of a narrow and well formed channel of the current uptrend, and potential resistance of the confluence of two Fibonacci extension measurements of 161.8% each (light blue and violet on accompanying charts). The range of the day fully engulfed the candles of the previous two days and partially filled the gap from Tuesday, October 5! 

Although Friday’s price action held support of the upper channel and Fibonacci extensions, further selling pressure is now likely in the near term given the intensity of this bearish engulfing pattern

Also, take a look at Wilder’s RSI on the daily chart. The indicator has turned down after hitting an oversold level not seen since the swing high in early December 2009.

In the bigger picture seen on the weekly chart GLD is still showing strength. Wilder’s RSI is rising and volume has been increasing. If GLD breaks through and holds the high of Thursday, then maybe the bulls will win this one, otherwise, proceed with caution.  (