<\/span><\/h2>\nWhen looking to buy a stock or ETF that is in the process of reversing a lengthy downtrend, it is easy to make the mistake of buying too soon (before a convincing bottom is in place).<\/p>\n
An easy way to avoid that problem is to wait for the formation of either a higher low or\u00a0<\/em>double bottom to form.<\/p>\nDrilling down to the shorter-term weekly chart below, notice the double bottom that clearly formed in December 2013 and January 2014:<\/p>\n
![\"Double](\"https:\/\/www.morpheustrading.com\/blog\/wp-content\/uploads\/2014\/05\/gold-gld-weekly-chart.png\" "\\"\\"")
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Although a double bottom is an encouraging sign that selling pressure in downtrending stocks\/ETFs is evaporating, it is important to have additional price confirmation before buying.<\/p>\n
With $GLD, the price confirmation that followed the double bottom has been developing over the past six weeks, in the form of…<\/p>\n
<\/span>2.) Bullish Consolidation, Reversal Candlesticks, And\u00a0Volume Patterns<\/span><\/h2>\nFor the second week in row, and the third week within the past five weeks, $GLD tested and held\u00a0support at the $123 area (pink rectangle on the chart above), then reversed to close near the highs of the week.<\/p>\n
The multiple bullish reversal candles are a clear indication that bullish momentum is finally starting to dominate.<\/strong><\/p>\nThe 40-week moving average (orange line)\u00a0has flattened out over the past few months, which is a bullish sign, but the 10-week moving average (teal line) has recently turned down.<\/p>\n
As such, $GLD will need\u00a0to deal with overhead resistance around the $127-$128 area<\/strong> on its next\u00a0rally attempt (the 20-month downtrend line also converges near this level).<\/p>\nNevertheless, I really\u00a0like the solid support that has formed near the $123 level, which could turn out to be the lows of the current correction off the recent swing high.<\/p>\n
Finally, the volume pattern over the past six weeks has also been bullish overall.<\/p>\n
Turnover dried up throughout the first three weeks of the six-week consolidation,\u00a0then began expanding as the bullish reversal candlesticks formed over the past two weeks.<\/p>\n
Lighter volume during the initial stages of consolidation is positive because it indicates the sellers are drying up, absorbing overhead supply and making it easier for the equity to move higher when the buyers return.<\/p>\n
The higher volume that followed over the past two weeks is bullish because each of the two bullish reversal candlesticks that formed.<\/p>\n
<\/span>3.) Gold Is A\u00a0Great\u00a0Alternative\u00a0In A Shaky Market<\/span><\/h2>\nThe third \u00a0reason to buy a gold ETF right now is not based on technical analysis, but is instead a bit of a bonus reason to start taking a position in $GLD or similar ETF.<\/p>\n
Although the S&P 500 is easily within striking distance of breaking out to a fresh 52-week high any day now, the NASDAQ Composite remains below pivotal resistance of its 50-day moving average and stuck in a 2-month downtrend.<\/p>\n
Unless the NASDAQ suddenly gets in gear and breaks out above multiple resistance levels, the tech-heavy index is likely to remain a drag on the broad market in the near to intermediate-term.<\/p>\n
As such, our overall bias remains on the short side of the stock market, as well as<\/em>\u00a0buying ETFs with low to zero correlation to the direction of the main stock market indexes.<\/p>\nCommodity ETFs such as $GLD typically move independently of the main stock\u00a0market indexes, and are therefore a\u00a0nice\u00a0alternative to buying individual stocks\u00a0right now.<\/strong><\/p>\n<\/span>Would You Like A Slice Of Leverage With Your Gold?<\/span><\/h2>\nTrading\u00a0an average daily volume of 7.5 million shares, $GLD is the most popular gold ETF.<\/p>\n
However, if you have a small account or are seeking greater potential returns, you might consider buying one of the leveraged gold ETFs instead.<\/p>\n
Like $GLD, the Gold Double Long ETF ($DGP) tracks the price of spot gold commodity, but is leveraged to move at double the percentage gain\/loss of gold futures.<\/p>\n
For even more bang, you may even consider buying $GLDL or $UGLD, both of which are designed to move\u00a0at three times the price of spot gold.<\/p>\n
As a reminder, leveraged ETFs are most suitable for short-term (and sometimes intermediate-term) momentum trading<\/strong> because they often underperform their underlying indexes as holding period increases.<\/p>\nIn today’s issue of\u00a0The Wagner Daily<\/a><\/em><\/strong>, I have provided subscribing members\u00a0with my exact and preset buy trigger, stop, and target prices for $DGP (rather than $GLD).<\/p>\nAs always, I will send a real-time alert to subscribers if\/when $DGP meets my preset criteria for swing trade buy entry.<\/p>\n
Do you agree now is the time to buy gold? Let us know your thoughts by dropping a comment below.<\/em><\/p>\n
![\"gold](\"https:\/\/www.morpheustrading.com\/blog\/wp-content\/uploads\/2014\/05\/gold-bull-market.jpg\" "\\"\\"")
From 2001 to 2011, the spot gold commodity thrilled gold bugs with nearly an 800% gain over the course of a decade-long bull run.<\/p>\n![\"Monthly](\"https:\/\/www.morpheustrading.com\/blog\/wp-content\/uploads\/2014\/05\/gold-gld-monthly-chart1.png\" "\\"\\"")
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