Anatomy of an Uptrend

Parker Binion
Jul 22, 2008

Let's dissect the GLD bull run and see what the charts are telling us. First, the monthly chart shows us two critical pieces of information:

1. Hidden bullish divergence, where price corrections in an uptrend make higher lows while the MACD makes lower lows, occurred in the summer of 2005 and summer of 2007. Both would have been excellent mid-trend entry points. You would have caught the rise from 45 to 70 on the first, and the rise from 65 to 100 on the second.
   
2. We experienced no bearish divergence between the May 2006 and March 2008 peaks. This means we should expect a retest of the March 2008 high.

Turning to the weekly chart, we can see regular bearish divergence (prices making higher highs, MACD making lower highs), first became evident in January of 2008. This would have tipped us off that the uptrend was losing steam:

The weekly GLD chart shows us, however, that bearish divergence can last awhile. Had we exited in January at the first sign of bearish divergence, we would have missed the move from 92.5 to 100 in mid-March.

This is important to remember as we analyze the daily chart.

The current uptrend started on June 13. After bumping its head on 94 several times since March, GLD finally broke through on July 11. Currently, the 94 level now acts as support. Unfortunately, GLD is experiencing bearish divergence as the MACD is making lower highs.

This is not the end of the world however. As noted on the weekly chart, bearish divergence can last awhile. And the monthly chart tells us to expect a retest of the 100 level.

I would not be surprised to see GLD reach 100 in the next few weeks. We'll be watching the MACD carefully. Should more bearish divergence occur when GLD retests 100, tread cautiously. This is not the technical set up in which we expect a quick rise through the 100 level to significant new all-time highs. Rather, I would expect a correction back to the 94 level if we see more bearish divergence at 100.

Jul 21, 2008
Parker Binion
email: Divergencereport@yahoo.com

Parker Binion is a student of the markets who has successfully managed his own investments for 15 years. He currently runs a public chart blog at Stockcharts.com called the Divergence Report

Disclosure: In the interest of full disclosure, the author advises that he is not a disinterested party in that he has personal investments gold and silver bullion and gold and silver mining shares. The author's objective in writing this article is to interest potential investors in this subject to the point where they are encouraged to conduct their own further diligent research. Neither the information nor the opinions expressed should be construed as a solicitation to buy or sell any stock, ETF, currency or commodity. Past performance is not necessarily indicative of future results. You may lose money trading and investing. Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions. The author has neither been paid nor received any other inducement to write this article.

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