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DeMark and Traditional Technical Analysis Diverge on Gold This Week

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Going into tomorrow's Fed QE3 decision, traditional technical analysis has gold bugs all bulled up, while DeMark analysis is waving some deep-yellow flags.

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MINYANVILLE ORIGINAL Come Thursday, gold (GCU12.CMX) will almost certainly register a daily "perfected TDST Sell Setup" above a "qualified break of the TDST Up Level" (the SPDR Gold Shares (GLD) is a little bit different). Translation: The qualified break of the TDST Up Level early in the TDST Sell Setup count suggests a strong bid to gold.

[Editor's Note: DeMark Indicators, which are codes you apply to your trading software, can be difficult to master. For a good explanation and code translation see the book DeMark Indicators by Jason Perl.]

However, as nothing moves in a straight line, it may be time to digest the move of the last couple of weeks. That should take the form of a one- to four-day pullback/pause beginning Thursday. Such a scenario borders on the irrelevant for longer term gold bulls, but here is where it gets trickier: This week gold is almost certainly also registering a "perfected Sell Setup" on a weekly basis, which argues for a one- to four- week pause/pullback. That would not be a big deal either, unless that one- to four-week pullback morphs into a completed daily TDST Buy Setup (i.e. nine straight closes lower than the close of four bars earlier), which would then throw all kinds of wrenches in the bulls' story.

If you are not familiar with DeMark indicators, this likely sounds like total gibberish, but the point is that going into Thursday's Fed QE3 decision, traditional technical analysis has gold bugs all bulled up, while DeMark analysis is waving some deep-yellow flags. And as you can tell from the attached chart below, DeMark indicators have worked pretty well when applied to gold.


Click to enlarge

I'm long a little Market Vectors Gold Miners (GDX) from $47.14 and I am waffling between taking my gain or letting it ride. Adding to it right now is really not on my radar.
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No positions in stocks mentioned.
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