The best investment over the past 10 years has been gold.  The good news is you don’t have to buy gold bullion to play.  There is an ETF (GLD) that tracks the price of gold.  How good of an investment has it been?  If you would have had all your money in the S&P 500 or equivalent over the past 10 years, you wouldn’t have made ANY money. In fact, you would have had a small loss.  However, an investment in gold yielded 400% during the same time period!

Gold moves opposite the dollar (ETF: UUP) as an inflation hedge.  UUP looks like it’s about to find some support after a nosedive since late August. And, although GLD will remain a wonderful long-term investment, it looks ready for a multi-week pullback.  Today’s chart is the weekly chart of GLD (so each candlestick represents one week).

COMPANY INVEST TECHNICAL ANALYSIS

“A” is the impressive uptrend the price has been in throughout 2010.  However, look at the MACD during the same time. The price keeps making new highs, while the MACD cannot. Looks like a powerful triple divergence setting up on the MACD.

“B” is the 50 day moving average. As you can see, GLD is trading WAY above both the 50 and 200, making it a very, very bullish investment.  The 13 day EMA (green line) is a good pullback target.  I would expect GLD to settle down to 120-121 (and possibly 114) over the next 2-4 weeks before another thrust up.

Looking at “C,” you can see that the buying volume has decreased for the past 3 weeks while the price kept going up.  This means the buyers are drying up for now and a pullback is imminent.

“D” is the downslope of the MACD and flat line of the histogram diverging with the price.

“E” is the 14-week RSI, which is a momentum indicator.  The “overbought” level of 70 has been breached. The last 3 times this happened, a selloff followed.

Company Invest Bottom Line: While GLD is a great investment, take some profits and look to load up again at the 120 level (or even 114). Another play is DZZ, a “short” gold ETF.  i.e., when the GLD goes down, DZZ goes up.

3M is another DOW component and a low beta stock. Beta is a measure of volatility (>1 indicates high volatility, <1 indicates low volatility). 3M comes in at 0.83, which means less violent price swings than the average stock. Although it seems a bit overvalued at a 15.88 P/E ratio (Price to Earnings), MMM has produced solid quarterly earnings and has healthy cash flow. Fundamentally, 3M is a sound company.

 Today’s Technical Analysis:

Looking at the chart, letter “A” indicates a trading range this stock has been in for the past two weeks. Stocks that trade in a tight range after a move up or down are said to be in consolidation. A consolidation could mean a “pause” resulting in a continuation of the move up, OR a “stage 3 distribution,” meaning it could be a prelude to a selloff. Based on the trading range, I’d be a buyer above 88, and a seller if it breaks below 85.

The letter “B” is the stock’s 200 day moving average. Notice the current stock price is significantly above the 200 day moving average. That is bullish mid to longer term, meaning there could be a pullback in the near term, but most likely you should buy on the pullback as there is a high likelihood the stock will resume its advance.

“C” is a 19/39 moving average crossover. Simply put, when the 19 (blue line) crosses up through the 39 (red line) it is a buy signal. When the 19 crosses down through the 39 it is a sell signal. So the “buy” signal is intact.

“D” is the 3 day RSI (Relative Strength Index). RSI measures the strength of the stock based on its recent price history. This chart shows that the RSI is rising and not overbought yet (above 70), so the stock could still move a bit higher.

Finally, “E” is the Slow Stochastic indicator. Slow stochastics are a momentum indicator. >50 is considered bullish, while <50 is bearish. >80 is considered overbought, while <20 is considered oversold. The indicator current shows the stock still has positive momentum, which is in agreement with the other indicators.

Bottom Line: “Hold,” but you could also buy now and place a stop loss order below 85, meaning if the stock breaks down below that level, your shares will automatically be sold, limiting your loss.

Alcoa Aluminum Daily Chart

Alcoa Aluminum has enjoyed a nice run from $9.92 per share on 8/31 to $12.22 at today’s closing. Lucky investors who got in at that time would have enjoyed a nice 23% gain in just over a month’s time!

Today’s Analysis:

Look at the green letter “A” in the chart above. If you notice, the stock price has went almost straight up from Sept 7 until today. Seems great right? However, Notice the red “A” at the bottom of the chart. That is a Stochastic indicator which measures momentum.  Notice how it is sloping down at the same time the price is going up.  That is a negative divergence and is a “sell” signal.

The letter “B” is today’s Japanese candlestick symbol, which is a “Hanging Man.” This candlestick appears during an uptrend and is a reversal signal.  Another “sell.”

Letter “C” are the volume bars, which are simply the number of shares traded in a day. Each bar represents a day. Notice how the buying volume has been diminishing while the stock price continues to rise. Another negative divergence. “Sell” again.

Letter “D” is the MACD histogram. MACD is a powerful technical indicator. The histogram bars are a nice predictor of market direction. They have flattened out. Watch tomorrow’s bar. If tomorrow’s bar, is shorter than today’s that is yet another “Sell” signal.

Finally the red line above the stock price (see red arrow) is the 200 day price moving average.  That line marks heavy resistance.  Should this rally continue, it will more than likely stall there.   The blue line near the bottom is the 50 day moving average. It can be considered “support.” So any selloff will likely be contained there.  In the middle is a trading range.

Bottom Line: After a 23% gain in a month, take profits and get out! Or if you’re feeling adventurous, short AA or buy puts.

This site will feature daily analysis of a company’s stock chart to assist you in making sound investment decisions and enable you to trade successfully. We will feature a different company from the Dow Jones Industrial Average each day, providing a visual chart along with text analysis and also a brief analysis of the broader market (S&P 500). Why are we concerned with the broader market? Because 3/4 of all stocks move with the S&P 500, so it is important to understand the direction of the S&P. Why the S&P? The S&P 500 is the most representative sample we have of the entire market and is made up of 500 companies. The Dow Jones Industrial Average, on the other hand, is made up of only 30 stocks, so it’s not the best index for forecasting. However, since there are only 30 stocks in the DOW, it is ideal to use those companies to analyze in this blog. However, this is an open forum. Please post your requests for analysis (by stock symbol) and we will do our best to analyze your stock.

The analysis on this blog uses the technical analysis methodology. Technical analysis is a security analysis discipline for forecasting the direction of prices through the study of past market data, primarily price and volume.

Technical analysts seek to identify price patterns and trends in financial markets and attempt to exploit those patterns. While technicians use various methods and tools, the study of price charts is primary.

Technical analysts also extensively use indicators, which are typically mathematical transformations of price or volume. These indicators are used to help determine whether an asset is trending, and if it is, its price direction.

Technicians seek to forecast price movements such that large gains from successful trades exceed more numerous but smaller losing trades, producing positive returns in the long run through proper risk control and money management.

Daily nugget: The average professional stock trader loses on 3 out of every 5 trades. However, using the buy/sell signals we will discuss coupled with a disciplined trading strategy will allow you to make great profits even when you only win on 2 out of 5 trades. That is the power of trading. Stay tuned!