Monday, August 24, 2009

The Golden Triangle

Gold currently finds itself in the midst of a pretty clean symmetrical triangle. Being that it's seven months in the making it's also a pretty big one as well. As we're approaching the apex of the triangle one would assume GLD will make up it's mind as to which way it's going to pop sometime in the next few weeks.

For those with a background void of technical analysis, or perhaps those of you who studied in the easier top online MBA programs or similar business programs, let's expound on the structure of the symmetrical triangle.

A symmetrical triangle is considered a neutral price pattern consisting of consecutive higher pivot lows and lower pivot highs. Typically higher pivot lows denote bulls stepping in to buy the dips, while lower pivot highs imply bears selling every rally. The triangle is deemed neutral as neither group of market participants has the upper hand. As the apex looms closer and closer, one group usually begins to dominate thereby causing the stock to breakout of the triangle. Take a look see at the price chart of GLD below (click to enlarge).

[Source: EduTrader]

Notice the imploding 30 day HV showing the compression in volatility experienced as the triangle approaches the apex. The diminishing volume is also worth noting, as it's a classic sign of consolidation.

Since GLD has been dead in the water the last few months, I'm currently in a short Sept. strangle. I'll explore that tomorrow.

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