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The Gold ETF Remains Above Key Level And Commodities Fail To Hold Breakout As Dollar Remains Firm

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Includes: GLD, GSG, UUP
by: Richard Suttmeier
Richard Suttmeier
Research analyst, banks, homebuilders, chartest
Summary

The Gold Shares ETF is above its monthly pivot for October at $137.12, but the weekly chart is no longer positive but overbought.

The Commodities ETF broke below its "reversion to the mean" at $15.11 as crude oil prices slide.

The Long Dollar ETF set its 2019 high of $27.17 on Oct. 1 between its fourth-quarter pivot at $26.82 and its risky level for October at $27.48.

Here are the weekly charts for the gold, commodities and the dollar ETFs.

The Gold Trust ETF tracks the spot price of gold and is said to be backed by gold bars in vaults in London.

SPDR Gold Trust (NYSEARCA:GLD)

Weekly Chart For GLD ETFCourtesy of Refinitiv XENITH

The Gold ETF ($141.90 on Oct. 4) is up 17% year to date and in bull market territory 27.8% above its Aug. 15, 2018, low of $111.06. The weekly chart is neutral with the ETF above its five-week modified moving average at $140.63 and above its 200-week simple moving average or "reversion to the mean" at $121.33. The 12x3x3 weekly slow stochastic reading slipped to 73.53 last week, down from 75.97 on Sept. 27.

Investor Strategy: Buy weakness to its monthly, quarterly and semiannual value levels at $137.12, $130.65 and $128.85, respectively. My monthly pivot for September is $138.57. The high of $146.82 set on Sept. 4 was a test of that week's risky level of $146.36 where profits were taken. The Sept. 9, 2011, high remains at $185.85.

The Commodity ETF is heavily weighted to energy by about 60%.

iShares S&P GSCI Commodity-Indexed Trust ETF (NYSEARCA:GSG)

Weekly Chart For The Commodities ETFCourtesy of Refinitiv XENITH

The Commodities ETF ($14.88 on Oct. 4) is up 6.1% year to date and up 10.2% since its Dec. 26 low of $13.50. This ETF is 11.6% below its 2019 high of $16.83 set on April 22. The weekly chart is neutral with the ETF below its five-week modified moving average at $15.11. The ETF is back below its 200-week simple moving average or "reversion to the mean" at $15.40. The 12x3x3 weekly slow stochastic reading rose to 42.38 last week, up from 40.51 on Sept. 27.

Investor Strategy: Reduce holdings on strength to its monthly and quarterly risky levels at $15.75 and $17.25, respectively.

The weekly chart for Nymex crude oil ($52.81 on Oct. 4) after spiking as high as $63.38 on Sept. 16. The weekly chart is negative with oil below its five-week modified moving average at $55.42 and below its 200-week simple moving average or "reversion to the mean" at $53.61. The 12x3x3 weekly stochastic reading slipped to 44.32 last week, down from 46.72 on Sept. 23. Its semiannual and annual value levels are $47.93 and $38.76, respectively, with monthly and quarterly risky levels at $60.03 and $69.66, respectively.

The US Dollar ETF is a basket of currencies that includes the dollar vs. euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.

PowerShares DB US Dollar Index Bullish ETF (NYSEARCA:UUP)

Weekly Chart For The Dollar ETFCourtesy of Refinitiv XENITH

The Dollar ETF ($26.96 on Oct. 4) is up 5.9% year to date and up 16.6% since trading as low as $23.12 in early-2018. A multiyear intraday high of $27.17 was set on Oct. 1 and was below the October monthly risky level at $27.48. The weekly chart is positive but overbought with the ETF above its five-week modified average at $26.77 and above its 200-week simple moving average or "reversion to the mean" at $25.19. The 12x3x3 weekly slow stochastic reading rose to 81.95 last week, up from 80.41 on Sept. 27 as the dollar becomes overbought.

Investor Strategy: Buy weakness to its semiannual and annual value levels at $25.65 and $25.47, respectively, and reduce holdings on strength to its monthly risky level at $27.48. A quarterly pivot is at $26.82.

How to use my value levels and risky levels

Value levels and risky levels are based upon the last nine monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play.

The monthly level changes at the end of each month, the latest on Sept. 30. The quarterly level was also changed at the end of September.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.

To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.

How to use 12x3x3 Weekly Slow Stochastic Readings

My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble" as a bubble always pops. I also call a reading below 10.00 as being "too cheap to ignore."

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.