Closing the Gaps in Gold - Part 2

September 29, 2005
Technical Analyst & Editor

Introduction

We have been picking the bottoms in each swing cycle of GLD, with precision and at very low risk, so far successfully, with a simple tool which combines volume analysis and gaps. This is a follow up to previous article, and an opportune time to prepare for the next bottom while most traders are only looking up.

gap A - a breakaway gap on huge volume was filled four months later, at much lower volume thus providing solid support. We bought that filler and the trade was profitable.

gap B - again, in early June, shortly after we bought and another breakaway gap on huge volume, filled a few weeks later at lower volume again, and we bought that filler also, another profitable trade.

gap C - the Katrina gap, this breakaway gap was on above average volume, but much less than both gap A and B, and I'm surprised it has gone up as much as it has on shaky ground. If gap C is filled at a future date at lower volume, then we will be jumping on it like we have before. If it is filled at higher volume, then it probably may not provide support and prices could drop to and test the 200ema. This is what we will be watching.

In the meantime, subscribers have been alerted on 9/26 to a potential bounce, which we got, but at this level, it is alright for aggressive traders to scalp a quick profit, but not suitable for the intermediate term traders.

Summary

Current euphoric sentiment among gold traders is understandable, and very well justifiable. Positive sentiment amid positive price action is natural, and not a contrarian play. However, trading is all about risk and reward. Aggressive traders can take advantage of the current 2% risk, using S (support) as stop should prices close below. And for the conservative traders, waiting for the gap C to be filled would be a more prudent alternative.

 

Jack Chan at www.traderscorporation.com

29 September 2005

Jack Chan is the editor of Simply Profits, established in 2006. Chan bought his first mining stock, Hoko Exploration, in 1979, and has been active in the markets for the past 37 years. Technical analysis has helped him filter out the noise and focus on the when, and leave the why to the fundamental analysts. His proprietary trading models have enabled him to identify the NASDAQ top in 2000, the new gold bull market in 2001, the stock market top in 2007, and the US dollar bottom in 2011.

In every cubic mile of sea water there is 25 tons of gold

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