Wednesday’s ETF Chart To Watch: SPDR Gold Trust (GLD)

by on February 20, 2013 | ETFs Mentioned:

Buying euphoria remains a dominant theme on Wall Street as made apparent by yesterday’s rally. Investors came back in a buying mood Tuesday morning following the extended weekend in observance of President’s Day. Stocks continued their ascent even after home builders’ index data missed the mark, coming in at 46 versus last month’s reading of 47. Investors instead focused on encouraging M&A activity after advanced merger talks between OfficeMax and Office Depot were reported [see ETF Insider: Bulls On Parade].

With FOMC minutes slated to hit the Street this afternoon, our ETF to watch for the day is the State Street SPDR Gold Trust (GLD, A-), which has a history of wild price swings following commentary from Federal Reserve Chairman Bernanke. The latest commentary from the Fed should offer valuable insights regarding the health of the U.S. economic recovery as well as any hints of potential changes in policy [see GLD-Free Gold Bug ETFdb Portfolio].

Chart Analysis

GLD has been losing its luster in 2013 while equities have relentlessly climbed higher as safe have assets have seen a drop-off in demand amid the improving confidence in the global economic recovery. Aside from its lackluster performance, GLD is causing more concerns recently after the ETF failed to hold above its 200-day moving average (yellow line) last week. In fact, GLD has been trading within a downward slopping channel (red lines) since peaking at $174.07 a share on October 4, 2012; notice how this ETF has posted lower-highs and lower-lows over the past few months [Download 101 ETF Lessons Every Financial Advisor Should Learn].

Click to Enlarge

Some may wish to jump in long at current levels given GLD’s beat down price and attractive upside; however, we advise conservative investors to hold off given the ongoing downtrend coupled with the fact that GLD is trading below its 200-day moving average [see How To Take Profits And Cut Losses When Trading ETFs].

Outlook

If the latest FOMC minutes spook investors, safe havens like gold may finally regain momentum; in terms of upside, GLD has major resistance around $160 a share. On the other hand, upbeat economic commentary can inspire further profit-taking in GLD; in terms of downside, this ETF has major support around the $150 level. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.

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Disclosure: No positions at time of writing.