The SPDR Gold Trust (ETF) closed today above its previous major spike peak high of the 12/2/2009 and 12/3/2009 period.  This is significant.  Volume was seriously lacking the GLD ETF today however, but still we must give it credit for a solid close near the top of the range.

The GLD ETF has now positioned itself to enter once again a zone of minimal previous price resistance.  This is very important because previous price resistance can be like quicksand, hindering ease of movement in price.

So higher moves in the GLD ETF from here going forward have the at least the potential to be fast and furious.  The gold market seems to be feeding off of paper equity market weakness like a vulture feeding off of a wildebeest carcass in the African Desert.

Gold is trading with the Relative Strength Index well above the mid 50 range and in bullish territory.  A move into the powerzone above 70 could lead to possibly explosive topside moves.

The gold price seems to be ‘the trade’ right here and now.  It has a huge almost one year cup and handle pattern, the handle of which seems to be finishing now.  It does not have a messy sloppy extended trading range like the stock market does.  So why still the obsession with the stock market?  You probably already know the answer.  Because of the still astonishingly huge number of stake holders with a vested interest in pumping the market up.  Needless to say it is not working too well.  The stock market is in a wide swinging trading range with no real trend.

Gold seems to be sensing this and is basically saying right now “Lets get the heck out of Dodge”.

From a super long term basis the Dow to Gold Ratio also seems to be speaking loudly.  The long term Dow to Gold Ratio Chart puts the ratio at about 8.4 right now.

If we assume that the gold price will blast higher to 2000 during the next 6 to 12 months and that the Dow Jones Industrials would stay at 10,300 then it would put the ratio at about 5.00 which is right at the bottom channel line of the 100 year Dow to Gold Ratio Chart.

Chart source: Sharelynx.com

If the DJIA were to decline from here it would change the movement of the ratio of course but this chart is definitely one to keep in mind assuming gold can get to 2000.  This long term chart suggests that the 2000 range of the gold price is an ideal major pausing point for the gold price.  Perhaps it would lead to that 50% correction in the gold price I referred to in a much earlier post.

So the stage is set a couple weeks before September.  Signs seem to point to a massive blow off type run in the gold price.  And remember this important fact… In many commodity bull market type runs, 90% of the move occurs in the last 10% of the time.  So if we are in the last 10% of the first major leg up in gold (before the 50% major mid term correction), then the upcoming price advance could be quite the sight to behold . . .

Finally if you look at a simple table of gold market returns versus Dow Jones Industrial Average Returns it should be pretty clear who is winning this battle.  And yet mass public ownership let alone investment fund ownership of gold as a total percent of paper assets is still at record lows ? Why?

The table shows annual closing values and percent return for the year for the Gold Price versus the Dow.  Gold has won 9 times out of 10 (I speculated on the closing values for 2010 however). 

The interesting thing about the annual returns for the gold price is that we have not seen as of yet a massive one year annual return of something like 70 to 100%.  Commodity markets are fully capable of delivering that type of return if the environment is right and keeping in mind my previous comment about the 90% of returns in 10% of the time behavior. . .

The iShares Russell 2000 Index IWM ETF today had an opening gap down and then a reversal topside for most of the day.   The volume today was typically light which is no surprise this time of year.

Today’s action was a pretty typical bottoming type action with the bearish opening gap down and then the full reversal end of day.  Today’s candlestick body on several ETFs engulfed last Friday’s small body.  On the Dow Jones Industrial Average a pretty convincing looking reversal doji printed on the close.

It is looking like this market once again wants to build another move topside to the top of the swing trading range.  It is hesitating down here and at the support of the previous swing trading range bottom on many indices.  The total lack of volume today seems to support this case as well.

Today the IWM tested the June 8, 2010 swing low on 61% less volume which is a bullish sign that we go topside again perhaps to fill the large gap at 64.13.

The head and shoulders bottoming formation in the Russell 2000 Index and/or the IWM ETF is still in play as long as we do not break below today’s low.

The weak volume today and especially relative to the previous 6/8/2010 high volume swing low seems to support this case.  If we somehow manage to bust down below today’s low later this week I will have to change my tune.  But this is looking like yet another swing trading reversal here.

The daily MACD histogram is starting to curl over again but is no where near a bullish confirmed MACD histogram buy signal.

So once again it appears that mutual fund Monday saves the day and we need to watch for signs of a topside move and possible gap fill on the upside.  This is one stubborn market trapped in a trading range.

Here is what the head and shoulders bottoming formation looks like drawn in a previous post on the Russell 2000 Index.

The summation index still looks like it is starting to curl over but it is still sitting well above the zero line and sometimes gives false sloppy signals on the turns especially this time of year.

I wrote about the Russell 2000 Index a few days ago and at the time I was writing about it the Russell 2000 looked like it was going to print quite a strong looking reversal hammer by the end of the day.  As it turns out the final candlestick was not a reversal hammer at all.  It was instead just a somewhat smallish looking doji candlestick.

I am not sure if my data provider was feeding bad data or what the exact problem was, because it was showing me that the Russell 2000 candlestick had a long bottoming tail similar to previous key reversal points in this index.

It is a very important difference because the smallish looking doji we printed on this past Thursday 8/12/2010 can now be simply interpreted as a minor pause in the previous down trend and the half way move towards the bottom of an important channel that this index trades in.  See the chart below for clarity.

In addition to the recent doji it can clearly be seen that the candlestick the day before was a sign of weakness that broke the uptrend in force since July 1, 2010.

If we look at the chart of the iShares Russell 2000 Index (ETF) (Public, NYSE:IWM) in the slightly larger time frame a more clearly defined picture starts to emerge. 

First lets start with a simple truth about the IWM trading pattern since the April 2010 top.  It can clearly be seen that the IWM has attempted to rally to a higher high during this entire downward trending trading channel but has each time failed (see the blue solid squares).  It has attempted to trade to a higher high 5 separate times but has failed each time.  In the two most recent attempts it failed again and made a small double top, and the second top that created the top also was not able to trade to a higher high.

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The long term iShares Silver Trust (ETF) monthly price chart of the silver ETF is showing that it is compressing into a 9 month symmetrical triangle that also appears to be the right shoulder of a much larger head and shoulders bottoming pattern.

If the iShares Silver Trust (ETF) can get a move going to 18.60 and higher during the month of September 2010 it could suggest that this metal has entered a breakout mode from a very large head and shoulders bottoming pattern and also a breakout from a 9 month symmetrical triangle.

The 9 month symmetrical triangle in silver is about as compressed as it can get.  Any more compression risks weakening the eventual resolution.  So it would appear that September is the month of decision out of this pattern.

I suspect that the gold price will blast higher in August 2010 and drag silver higher as well.  Strict discipline still tells us that the breakout could move in either direction, but the weekly confirmed MACD histogram buy signal in the gold price is hinting to me that the break will be topside.

This breakout has the potential to be quite spectacular as silver has 9 full months of energy built up to feed from.

The doji reversal hammer pointed out with the red arrow in the chart was a very key monthly turning point for silver.  It was a defining month for this metal and showed real demand and returned silver to further accumulation.

The action during the last two months has clearly been very narrow range and pretty much put everyone to sleep.  Usually when markets are done doing that they burst into high volatility states and end up surprising the majority. 

By all current appearances we seem to be stuck in typical lazy August trading in the SPY ETF.  The volume today looks to be quite lame and typical of this time of year and makes it hard to speak with any conviction about the next big trend.

Instead of conviction, the SPY continues to trade like a bouncing basketball between a large swing trading range.  Volume continues to contract within this trading range and is likely to finish today at a relatively low level of the recent average range of volume.

If there is going to be a big decline still yet to come it would seem that the only place left for it to happen would be in early September.  There are a little bit more than 10 trading days left in August so perhaps the SPY ETF will get another typical low volume rally the next two weeks and then another drop that starts with more conviction in early September.

But the current read is that the market got quickly oversold again and is still contained within the large trading range.

I mentioned before about how if we were going to break support then the market needs to show us it wants to do so quickly and to show it with high volume.  This has not happened.  Instead it appears once again that we are lingering near support and could start to move in a stance for another reversal topside.

The summation index looks like it may start to transfer into a sloppy sideways drifting mode leaving little conviction about the next trend.  Still, a bearish cross of the 5 day exponential moving average over the 10 day exponential moving average should be a sign of momentum shift in the market.  Ideally when that shift occurs the market will also confirm it by breaking key support levels.  If it does not then it is saying we are just consolidating instead of doing a robust trend change.

Anyway for the near term 106.50 is the must hold level in the SPY ETF in the days ahead to keep it constructive within this trading range.  A break under there and it could start to open the doors to much lower levels.  But again as I already mentioned, it seems unlikely this would occur in the next two weeks.

In the days and weeks ahead I may start to do more close coverage of both the gold price and the mining stock sector.  I may do this because of the chance that the gold price may soon unleash itself into a raging (bullish) monster and it could start to become more relevant and timely than any other sector in the market right now.

I have been doing a lot of coverage of the sp500 and the SPY ETF.   But I have to tell you honestly, where is the trend in that market ?  It seems like a wasteland of swing trading ranges and lack of real gusto in terms of direction.   The direction will eventually reveal itself but I want to cover the areas that I believe deserve the most attention and ahead of everyone else before they become ‘mainstream’ ideas.

Of course I will still need more confirmation about the possible moves in the gold and mining stock sector in the weeks and months ahead but I am sensing that something big may be close to happening in this sector and I want to be on top of it before the dog and pony show starts on the major business TV networks.

It could very well be that the gold market will become the ‘only game in town’ soon.  People have said that before but to be honest I have still up to this point not really noticed a mass public adoption of the gold story.

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The SPDR Gold Trust (ETF) appears to be close to a weekly confirmed MACD histogram buy signal.  The GLD ETF needs to get a weekly close tomorrow above 118.42.  Currently it is trading at 118.56.

A confirmed weekly buy signal on the MACD histogram tomorrow would in our view be very significant as we are just 2 weeks away from the seasonally very powerful month of September for the gold market.

The weekly chart also shows a weekly reversal hammer of 2 weeks ago in which the trading low of that week tested the neckline of the previous head and shoulders bottoming formation.

The SPDR Gold Trust (ETF) also shows that it was able to crawl back above topside above the longer term up trendline.  This recent move appears to be creating a handle of yet another cup and handle formation which the gold market has been quite famous for time and time again.

One could also argue that the recent 8 to 9 month consolidation resembles that of an ascending triangle formation but is also a cup and handle pattern contained within it.

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