The Wake-Up Call On Coffee (GMCR) And Gold (GLD)
The guy in the office down the hall was always a bit too loud. But this morning we couldn’t help giggling when he all but roared over the phone, “Whaddaya think of your precious metals investment, now, you old tugboat?”
Now, tugboats are fine, we suppose. They serve a purpose, anyway, and there’s nary a naval going vessel of serious dimension out there that doesn’t require the service of one of those helpful little pullers once in a while.
But in the end, you’ll have to agree they’re not really sexy. They’re not rich and famous, nor envied by the vast blot of sailors or would-be sailors or, like my son, just those who like looking at pictures of boats.
Of course, the show’s not over by a long-shot; we appreciate that. And despite Gold’s loss of fifty dollars over the last three trading sessions and her near 6% decline since early October, we understand the need on the part of the tugboats doubters out there for some proof that we are, indeed, on a golden decline.
Always worth having another look at the charts (and a few other crispy, well-spiced nuggets of info) that might have you second guessing your love affair with an asset that is declining in value and has been doing so for fifteen straight months.
This is gold proxy GLD, the SPDR Gold Trust ETF, since last August, 2011:
For those who managed to play any of GLD’s intermediate reversals for a profit, congratulations. But the winning trade until today has clearly been the bearish one, and as we’ll show you below, there’s likely more growl left in the move.
We note first and foremost that since last September (2011) GLD has failed to break above any of its former highs, though a month ago it did manage to retrace up to overhead resistance at 175 without breaking above (red lines at top).
And at the very moment it was reaching up to that former high, GLD’s Relative Strength Indicator (RSI, in red at bottom) was also completing a very important move. As the chart shows, RSI readings at the high registered extreme oversold (over 80, red circle), signalling a pullback was forthcoming.
Note, too, that in all the fifteen months that GLD has been declining there has been a steady decline in the number of shares traded per day (blue line). This is not a confidence builder for those seeking a bottom. What would be more constructive is evidence of GLD stock churning as it changed from weaker hands to stronger. That hasn’t happened.
Finally, both RSI and MACD indicators have now pulled below their respective waterlines with the latest drop in price. This also doesn’t bode well for gold’s immediate future.
What’s perhaps most damning, however, we leave for last.
Have a look at the three month chart for GLD:
Though it’s clear from our first chart, we’re taking advantage of the bigger picture here to comment on the gathering of the moving averages at GLD 160 (black box). There’s nothing so scientific about this formation and nothing technically significant per se about it, either. What is significant is that this sort of gathering regularly occurs during a slow rollover of the averages after a long and steady decline.
If we’re, in fact, witnessing such a rollover now, it’s also important to note that GLD sits today a mere 3.5% above the support area at 161. Should it drop below that level, 161 would then become resistance. Note, too, that when moving averages are gathered as they are for GLD, it becomes easier for a single day’s move to slice through support and change a stock’s complexion entirely.
There’s little question that a test of the 161 level is now inevitable.
- Trendline support, in red, has been broken.
- Price action has fallen back below the short term moving average (blue circle), and
- Both RSI and MACD have again submerged below their waterlines.
The best we can offer is that all goldphiles keep an eye on GLD 161. Any move below that level would likely be a game-changer.
Climbing a Green, Green Mountain
We close with a word on Green Mountain Coffee Roasters (NYSE:GMCR), a stock we suggested you consider back on the 22nd and 29th of September. Anyone who followed our advice with either a stock or options purchase has made out handsomely.
Congratulations… and a warning.
GMCR looks fully valued here and topped out for the meanwhile.
For those not addicted to caffeine, we say consider shorting it or buying some PUTS.
Many happy returns,
Matt McAbby, Senior Analyst, Oakshire Financial