Rhody Trader

I was flipping through a few charts, just looking to see what might be interesting, and came across a developing set up in gold which bears watching. As you can see from the weekly chart below, the Bollinger Bands for GLD have been narrowing rapidly.

Narrow Bands are often an indication of a market getting ready to make its next meaningful move. In this case that move may yet be a few weeks off, as the Bands do still have a ways yet to go before they get down to really narrow levels. The Band Width Indicator (BWI) line on the bottom of the chart (Upper Band – Lower Band divided by the Middle Band) shows that at a couple of points in the last few years they were tighter.

Now the market could still take off on a new trend from the current Band set-up, but the way GLD is backing off from the most recent peak (which was lower than the prior one) suggest that further general consolidation is the likely pattern, and thus a further narrowing in the Bands. In a few more weeks, though, GLD will be in a really nice position. Then we’ll have to see how the price action is developing to get a read on the likely direction it’s going to break.

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