GLD – Beware of Greeks Bearing Gifts

As of the close of September 30, 2011 there is a small symmetrical triangle formed in the daily chart of GLD, also known as a pennant. This chart pattern is usually a continuation formation that duplicates the move preceding it. Thus, the objective of the pennant formation is near $143 or around that price. However, there are some warning signs about this chart pattern.

The reliability of pennant formations is not that high. What is more important though is the fact that the objective of the formation lies below the 200-day simple moving average and below support at $150. At the same time, there are two large gaps that were left behind last week, which scream for a closure.

Furthermore, both the RSI(14) and MEI(14) have double bottomed at oversold territory. Therefore, there are several reasons for me to suspect that this pennant formation may fail as a short signal besides being so obvious to the naked eye.

Beware of Greeks bearing gifts. I think the title was relevant given the Greek debt troubles that currently mark most major market moves.

Disclosure: No relevant positions.

Chart Source: Amibroker (Charts created with AmiBroker – advanced charting and technical analysis software. http://www.amibroker.com/”)

Disclaimer:The author is not a financial advisor and does not recommend the purchase of any security or advise on the suitability of any trade or investment in any timeframe. ETF, stock, futures, forex and options trading and investing involves substantial financial risks and can result in total loss of capital. If investment or other professional advice is required, a licensed professional should be consulted.

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