Option Investor
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Gold bugs might look for 86

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The major indexes continue to trade steady just off their lows of the session with the Dow Industrials off 114 points, while the broader-based S&P 500 Index (SPX.X) 845 -1.69% falls 14 and the broader-yet NASDAQ Composite (COMPX) 1,300 -1.72% shows a 22- point decline.

Earlier I discussed the sector bullishness continues to present itself in the Gold/Silver Index (XAU.X) 80.19 +5.45%, which continues to build gains as the session progresses. However, I also discussed the higher levels of bullish % from Dorsey/Wright and Associates for this sector, which has generated many an e- mail from "gold bugs" on where bull might look for some resistance.

Gold/Silver Index Chart - Daily Interval

I've place a simple regression channel on the daily interval chart of the Gold/Silver Index (XAU.X), and with the bullish % reading of 76% indicating a higher level of risk for sector bulls, the upper end of a regression channel near 86.00 currently might serve as a "blow off" type of near-term top on the XAU.X. I've added very "inflection" points of the bullish % since the XAU.X's highs found early last summer when the XAU.X reached a high near 89.00, when the bullish % reached 82% bullish. While the bullish % doesn't necessarily tell a trader about price action, it evidently has done a good job in the sector for explaining risk and should be monitored and understood by traders.

Jeff Bailey

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