Gold breakout buy signal

February 18, 2022No Comments

Hello, and welcome to the Smart Money Dumb Money Show I am your host, as usual, Keith Richards. I’m president and chief portfolio manager at ValueTrend Wealth Management, and I’m a technical analyst, so today, as usual, we are going to be looking at some charts. I want to revisit a theme from about three weeks ago that I blogged about. So some of you that watch this video will probably be familiar with my blog, which is available on our website, www.ValueTrend.ca. And I blog twice a week on various subjects. It’s very up-to-date information, and it’s really my best idea to put forward that you can access it free usually twice a week. And I encourage you that if you don’t already subscribe to this video and to the blog, you do so. It comes right into your inbox and it’s very valuable information and no, we don’t pepper you with marketing and advertising and solicitations.

It’s an information program and I encourage feedback and comments and discussion, and it’s just a great community asset. So I really encourage you to get the blog sent to your email address every week. And on my most recent blog, I actually provided a link to do that. Anyways, back to the blog that I did three weeks ago, it was on gold. And I was noting at the time that I felt gold was setting up for a possible breakout of the triangle formation. So I’m just going to share the screen because I want to bring you to that blog. And then we’re going to take a look at the charts. So just one second here. So this is the, I’ll first show you the blog. So this was January the 19th. And what I was seeing is some momentum divergences.

 

And you can read about this, but we’ll take a look at what’s happened since January 19th, which today is the 17th of February so that’s almost a month ago. And what I was suggesting is there was a set potential for gold. And so now I want to bring you forward to take a look at what I was looking at. So back in January, if I back this out a bit, that’s the beginning of the year around here, I noted this big triangle. Now, this is on spot gold. So what I was saying is, Hey, look, we’re getting some divergence positive divergence. You can see the lower low therein, you know, a low point in the RSI. And it had been making higher lows despite the fact that the market itself was moving in a triangle, in fact, lower highs. So it, the divergence of the momentum was giving me some upside clues, as well as the MACD. You could see even back then it was diverging positively.

Well, in fact, it had been diverging since early 2021. So what we needed, and I mentioned in the blog, was that what we needed to see was a breakout out of that triangle. And that’s exactly what we’ve seen. So I now view gold as a good opportunity as an entry point for a probable move to the upside. Now, whenever you’re looking at a consolidation breakout, even a triangle, your stop point would be if it moves back into the triangle. So in this case, Gold is somewhere around 1800 and change. If it drops back below and back into that sort of high 17 hundred or so, the move may be over. So you know where you’re going to sell. And you know, now that it’s breaking out. Now, depending on how aggressive you are, you want to wait a bit of time after a breakout of any kind, whether it’s a breakout out of a flat level of resistance or a triangle or whatever it is you’re looking at.

I have a rule of thumb and it is discussed in my books, and it’s also discussed in my recent technical analysis course, which is called the rule of three. And the rule of three basically says that you wait an absolute minimum of three days for that break out to hold before you even entertain moving into the market that you’re looking at. Now, you could extend that if you’re a more conservative investor, you can wait up to three weeks. So three bars on this weekly chart. Obviously, this is one bar of a week so it’s been more than three days. So as an investor, you could step in with a leg. Now, again, I encourage you to take my technical analysis course, because in that course I talk about rules like, okay, we got our three-day rule out of a breakout, now what? Well, you leg in. You don’t throw your entire allocation into this trade all at once, because things can happen.

It can go back into that triangle area and have a support rule broken, and you’ll be forced to sell. So what I usually do is leg in and on the course, I talk about legging in, in two to three steps. And if you want more information on exactly how you do that, I do encourage you to take the course. So right now, gold has broken out of the triangle. It’s in the first week of its break out, but we have all those other signs such as hooking up stochastic, hooking up RSI plus positive movement and MACD which is probably one of the more important indicators moving up, as well as money flow. Now, money flow is kind of funny looking here. It does have negative divergence, but generally, we’re looking, that would’ve followed the triangle. It does look positive, but money flow momentum, I should say is not looking fully on the side yet.

At least it’s positive. But what I am seeing is in these other indicators, very positive move. So that’s it for the gold bullion. So let’s move to the gold stocks and this is where I’m very interested to see that gold stocks actually do have positive money flow momentum. Take a look at that. So gold stocks, this is an ETF. It’s the iShares XGD shares, and it’s a world gold index. And it’s showing us how investors are feeling about gold. They’re just starting to move in. This is a money flow momentum, and the momentum is picking up and in fact it just crossed the zero line, meaning momentum is going back to a positive situation and you can see what happened last time, almost an identical formation where you had a washout in momentum and it started to move up and then crossed.

 

And right at that point, if you sort of follow back here, as momentum was picking up, boom gold went up to its recent highs. So this could be a very ideal setup for gold. I’m gonna point out a couple of other things here. Stochastics, now compare this to the bullying stochastic reading. It was pretty benign-looking. It was positive, but not over the top wonderful. Take a look at stochastics here. It’s definitely been as gold was falling with no higher highs or no higher lows and definitely falling lows, you had stochastics and you had RSI diverging positively, and you had good old MACD also moving up against the trend. So that was an early sign and here we are, our first week above of its breakout. Now notice that the stocks had kind of a right angle, a right-angled triangle. That means that the lows were flat, but the peaks were falling.

 

And the breakout now shows us that it’s broken out of this right triangle. I wanna point out that when right-handed triangles, that look like this, breakout it tells you that, gives you a pretty good indication that this market has some legs in it because the market didn’t wanna sell it any lower than, in this case, around 16 and a half. Even though it was declining its peaks, it was building into this crescendo where the sellers would only go so low and the buyers were selling out at whatever price they could get out at. Now, we’ve suddenly got interested in those, those people that held the stock would not cave in below a certain point. So those folks are still in the trade and now we’re seeing new people enter as indicated by the money flow momentum. Money flow is just telling you how much, how many trades are going in on this, in this case, ETF.

And what’s the momentum look like. It’s a short term momentum indicator of money moving into this position. So it’s very positive. So my view is that we’re looking at a very good chance of gold and the producers, in particular, moving up and just like always, as I always try to enforce, is that you don’t know what’s going to happen. And my favorite expression is actually by a fundamental analyst named Howard Marks and he says, you can’t predict, but you can prepare. And I’ve adapted that into my own philosophy. So what we’re doing here is we’re preparing for the move. We watched the triangle, we saw the breakout, I’m starting to leg in. We just added some positions just late last week into our gold position. So I’m not going in well guns, a blazing, I’m believing that it should be a process because it could always turn back.

You can’t predict, but you can prepare. So this is my idea of the day on the video. And you won’t catch this on the blog, which is why you’ve gotta watch both the videos and the blogs. But I hope this is of some help to you because I really do think that this is one of those potential opportunities that you get once in a while. You have your strategy, you leg in. If it goes wrong, you sell. If it goes back into the triangle, you get out. That’s the plan. And again, I really encourage you to visit the technical analysis course site. And I encourage you to enroll. I specifically made that course very cheap. I made it so that anybody could afford it. It’s really not a, I mean, for the, I think it was seven hours of video and many, many quizzes and whatnot that are included in the course.

It’s really, I put it out there so that my followers of the blog and the videos could really learn a good disciplined trading plan. Okay, well, thanks for your attention this week, we’ll be back next week with another video. And I hope that helped. If, by the way, you or someone you know, needs help on their own portfolio management. And they would like to pass the baton onto an active portfolio manager, take a look at our performance. By the way, I can’t wait for our February numbers cuz we are, at least at this point, extremely ahead of the indexes and I am here to help those who don’t want to do it on their own. We are active. We’re not passive managers, we’re not buy and hold people. So if you believe as I do that, this market is going to be relatively more volatile over the next year or so then you might want to either adopt an active trading program as I teach you on my courses and through these videos or hire somebody that knows how to do it like ourselves. And we’ve proven that through our performance. So thanks for visiting and we’ll see you next week.

Never miss another video!

Get Smart Money Dumb Money videos delivered directly to your inbox.

Recent Posts

dow jones

Here’s One Chart Pattern You Can Profit Off of in Any Market Environment

cpc

Have we seen the Bear Market Bottom?

SPX

Ask Us Anything – Answers

gold-

Here’s What Needs to Happen Before Gold Prices Rise

twochahrts

Market Outlook with Craig Basinger, Chief Market Strategist at Purpose Investments

COMPQ1

Time to buy aggressive growth stocks

Keith's on Demand Technical Analysis course is now available

Scroll to Top