Swing Trading Strategies & Stock Picks Since 2003

I have read bullish and bearish chatter about both of these instruments GLD (SPDR Gold ETF) and the Euro (EURUSD). Pimco now thinks Greece is on the skids once again when the European bailout winds down, and many feel that a rally in the U.S. Dollar will press gold prices back a bit.  The talking heads are furiously bobbing up and down with bullish and bearish tomes about gold and the U.S. Dollar. I still believe that the one entity that does not lie at this juncture is a chart, and for that reason I will rely on it first to come to some decent conclusions. They neither get paid by government or networks nor do they have endorsements very often.

I am a bit of a skeptic of both scenarios, largely because the bigger picture still seems to be playing out, but it could be getting dicey for the Euro versus the U.S. Dollar for a bit. As a result, GLD might be under near term pressure also.  Let’s take a quick look from the Fibonacci pattern perspective, with some momentum analysis thrown in.

Let’s look at the weekly chart for GLD. Note that weekly momentum is still bullish, though it is becoming slightly overbought. Regardless of that, the 1.272 extension target of roughly 129.30 is in play, as well as the outside 1.618 extension target of 136.70.

Daily momentum however, is a different matter, showing that it has previously been overbought and is now showing bearish divergence also.  (Note, in interest of time I posted an older chart, but negative momentum was still present this evening despite the failed rally attempt to take out 123.56 on GLD.)  Through last Friday, however, volume has been extremely light. It is indeed possible that GLD could correct back to that original trend line, perhaps to 116.67 and still remain on the longer term weekly uptrend line. If that occurs and the correction ends there, the longer term targets are still intact.

So what about the U.S. Dollar in relation to the Euro? Let’s take a look:

Monthly momentum: Positive

Weekly momentum: Negative (As of 18:00 hours EDT US) 09/09/2010

Daily momentum: Negative (As of 18:00 hours EDT US) 09/09/2010

It does appear that the Euro could indeed begin to weaken in the short run should the daily momentum continue to confirm the weekly momentum in the EUR A0-FX (EURUSD). If EURUSD breaks below 1.24 (1.2390 as shown in a chart I meant to present on Monday but which still represents the potential target), price symmetry could drive the EUR to 1.2131. Is that possible? If more bad news from Greece and other problems in the Euro-zone emerge, it is. It is likely? Only time will tell. A stronger dollar would be bad news for gold bugs as there would be pressure put on GLD and gold.

I think the smart thing at this point is not to chase gold but to wait for Euro weakness (thus dollar strength) to add positions. My server did not store the posts I did late in 2008 and 2009 when gold was in the mid-800s, but those positioned in that area probably needn’t fear some kind of collapse. What one should do now is await support holding around that 116.67 area or just below to look for potential buy points.

With the U.S. Dollar in crisis and the Euro swooning, it seems the vortex to the currency drain and sewer line will have lots of company. That kind of problem causes volatility and that volatility will produce OPPORTUNITY for traders who are patient to look for entries.