Today I came across the interview Aaron Task had with Bernie Schaeffer yesterday on his Yahoo Finance show, techticker. In the accompanying article he also writes, it included a point about gold that I found interesting. This point also reminded me of a post I wrote not too long ago.
In Task's article he mentions that when gold pulled back on Friday, it "tumbled more than $60, or 5%". When Task mentioned 5% it reminded me of a prognostication I made before Thanksgiving (November 24, 2009). In that prognostication I stated that I expect the gold ETF (GLD) to "only pull back as much as 7%". Now the point Task made is true, but it only takes into account intraday trading. When I made my statement I was not talking about intraday trading. So how much did the ETF really fall?
On December 2, 2009, two days before yesterday's pull back, GLD closed at a high of $119.18. As of yesterday's close, GLD is at $113.75. That means that it tumbled a total of $5.43, or 4.6%. This is still more than half of what I prognosticated. On top of that, it happened within the two week time frame I stated also. Not bad in my opinion. The question now is what will the next trading day bring? Will it a) continue to slide, b) oscillate sideways, or c) bounce?
The answer? I don't know. My opinion is that statistically it should continue to slide for at least one more day. Especially lately as it has been over-priced for an extremely long period of time, and the price has been increasing way too steeply. Usually such things are indicators that the drop will also be dramatic, as it has already shown in one day. However, humans are irrational and the sales pitch of a metals commodity broker is quite convincing. It is very likely that it will oscillate sideways for a while or just bounce. Maybe it will create a double top before coming down again. I just don't know.
What I do know is that the candlestick created on this down day has a long lower shadow. This usually means that bulls saw the drop as a good thing and rushed in to grab a great deal. From here the equity value travels sideways or bounces. The length of the shadow in comparison to the body is an indicator of direction. Generally, the longer the shadow, the more likely there will be a bounce. Since this one has a long shadow shorter than the body of the candlestick, it will probably travel sideways for a few days. That is my opinion, you can take it or leave it.
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=== References ===
Don't Fear the Fed: Stocks, Gold Still a Buy, Bernie Schaeffer Says
Tuesday, November 24, 2009 - Investors Opinion: Portfolio Update
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Wild guess, this comment is to inform you that I know that the Yahoo! Finance Tech-Ticker link is a dead one.
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