A Plethora of Golden Pocket Pivots! 082510

Published : August 25 2010 at 20:06 ET

On the heels of our pocket pivot report of August 13 where we noted that a pocket pivot buy point had occurred in the nearest gold futures contract (see VoSI Archives), we see that the SPDR Gold Shares ETF (GLD) has now chimed in (albeit somewhat late) with back-to-back pocket pivots of its own, as the daily chart below shows. This pair of pockets is buyable here as it is also confirming a breakout from a little cup-with-handle on the daily chart, and one could use the 10-day or 50-day moving average as your guide for a stop, depending on your risk tolerance. The idea behind using the 10-day is that when gold has these big price moves to the upside, it tends to run along its 10-day moving average, so using a violation of its 10-day moving average is a possible sell point. Note, a violation occurs when it closes under its moving average, then in subsequent days, trades below the low of that day. This violation usually occurs during the trading day. Remember, however, that gold is a commodity, and a volatile one, hence the GLD is subject to gap-ups and gap-downs on the open, and for the longer term investors out there, using a violation of the 50dma instead can be rewarding.

Adding some more glitter to the GLD and gold futures, we note that Lihir Gold Ltd. (LIHR), and El Dorado Gold (EGO) both flashed pocket pivots today. LIHR flashed a second pocket pivot in the last four days as it has held along its 10-day moving average over the past couple of weeks. EGO's pocket pivot is also a standard new-high breakout buy point, and the pocket pivot theoretically gives added weight to the new-high breakout.



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