Gold Price Didn’t Make A Lower Low – First Signs Of Technical Strength

by OLIVIER on FEBRUARY 1, 2010

Gold along with silver bounced today and didn’t print a lower low. As implied by the headline I chose this means we witnessed first signs of technical strength. Not more not less. Technically speaking we are still in a lower high trading environment. Unless gold can take out the lower high it printed in January 2010 at around 1,150 we are by definition in a sideways trading movement.

That being said, a great way to gauge strength of a particular sector or a specific stock is to compare a stock’s price action with your expectations. Lots of traders expected gold to sell off hard and retest at least the 1,000 US Dollar level. It could still do that. But for now it is displaying more strength than sentiment was implying. Odds therefore are it will continue to behave that way and surprise with moves to the upside as long as the recent low is not taken out.

Up-to-date USD$ Gold Price Chart on my public list.

My game plan so far this year has been to be very conservative and to only put on a few positions in stocks that from a technical perspective I deem to be extremely strong. These stocks can still move to the upside and make new highs all the while their underlying – in this case gold and silver – is moving sideways and not making new highs. I still don’t think it is a good time to be overly aggressive. It is a great time though to watch how specific stocks of interest do behave. This is a period in the resource stocks sector that should separate the wheat from the chaff. Stocks trading near their 52 week high or at all time highs when this consolidation period is over will have the potential to explode to the upside. If gold doesn’t move ahead and print new all time highs being in the strongest stocks simply offers the best protection for your capital.

A good example for a stock worth watching would be CRK.TO – Crocodile Gold.

Up-to-date CRK.TO Crocodile Gold Chart on my public list.

It did well today and reacted very well to the bounce in gold. That’s typical trading behaviour for strong stocks. I am adding and removing stocks to my public list accordingly. Good stocks make it on my list. Weak stocks get dumped.