Tech talk: Is the bull market still golden?

April 20, 2009 09:55 AM

Riding the long-term gold bull can be quite a wild ride these days. Many traders have been bumped off the proverbial mega–bull, much like a rookie bull rider, as is illustrated in the daily chart (see “Gold at critical level”). Extreme volatility rang their bell way before the eight second ride. In gold’s case, the eight year rally is over.

Forget about the pundits who call for $2,200 gold on an inflation-adjusted basis. The technical picture clearly portends higher values for the shiny mineral in the days and months to come.

Monthly charts are more useful when analyzing long-term trends, and the trend in gold is pointing up. The 20-month moving average (see “Gold at critical level”) has been a major support area. Bull riding has been called the most dangerous eight seconds in sports, and the same can be said of hanging your hat on a moving average too many times. However, with the proper risk management it can be a very effective tool, especially when confirmed by multiple time periods. The 20-month moving average was within a couple of dollars of the 100-day moving average in the first week of April and both serve as support for gold.

The multi-year run in gold began in September 2001 with a close above the 20-month moving average. Since then gold has only had one monthly close below this line. Last October gold did pierce and close below the 20-month. But the market never did revisit the October lows and closed above it the following month, rekindling bullish forces.

Gold is currently testing the 20-month and 100-day moving averages. If they hold, gold could retest the recent high of $1,014. If it does retest this area, the next objective could be $1,140 based on a 38% extension of the last down move. This is a common Fibonacci number retracement projection.

Support can been seen on the trendline touching the October and November lows in the daily chart but the low of $680 needs to be broken before the bull is vanquished.

Charles Nedoss is a registered representative of Peak Trading, a Division of Rosenthal Collins Group LLC. He contributes market comments to multiple media outlets.

About the Author