Gold growing cold for head & shoulders potential drop

Gold has been tracing out a pattern that's starting to look like a classic bearish head-and-shoulders pattern on its daily chart. I've also noticed that the chart of GLD (gold ETF) shows lots of volume on selling days over the past weeks, and less on buying (up) days. I'm not saying that gold has put in an all-time top, but just that this pattern could send it to test support such as its 200-day moving average around the $1200 to $1222 level. If it closes under a prior day's low anytime soon, that could trigger the sell signal for that kind of a drop.

Below are charts of the gold continuous contract ($GOLD), daily and weekly. You can see that there's enough negative divergence to make this near-term bearish potential plausible. Once a swing trade sell/short trigger occurs by a close under prior day low, the classic stop-loss level would be just over that same prior day's high (which should be synonymous with the peak of the "right shoulder").

This is just pointing out the pattern that's shaping up now. For more about the gold charts, check out what other analysts are saying, like Andre Gratian in his weekend update (like the ones posted here, see labels list at right); Tony Caldaro with his Objective Elliott Wave public charts (see his weekend updates also posted here); and Terry Laundry with his T Theory(Tm) charts of gold. Their websites are included in the sites links lists at the right side of the page). I'm thinking that gold will remain bullish for a long time. But that it's looking due for a correction with this pattern presenting for the near term.

Those who prefer buying or adding to long positions might prefer to think in terms of looking for a dip buying opportunity on a correction. But if it drops too far and loses the support of the 200-day moving average, then some might want to step out and wait for a better buying/re-buying opportunity.

Others might want to hedge such as with options, or try trading with inverse ETFs (DZZ is one that's double-short, and there are others). Just remember to use good trade management and stop-loss protection if gold decide to take a different path.