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Contextualizing Retracements By Time Frame

Posted By Barry Ritholtz On April 25, 2013 @ 1:30 pm In Gold & Precious Metals,Investing,Technical Analysis | Comments Disabled

The meme of this morning was “Gold has already regained half of its losses.”

That was the chatter I keep hearing. (The comment was blindly repeated [1] by the usual [2] suspects [3]). As discussed earlier, I am now on all sorts of email lists informing me what a fantastic buying opportunity this drop was — but you may have missed it! Gold has already made up half of its losses!

I was surprised to hear that, considering GLD had bounced 8% after falling off of its highs by 30%. That sent me to the charts — here is what I found:

 

Gold has indeed regained half of its losses — if you only look back as far as last Tuesday:

[4]

 

Down 15% up 8% is indeed a > 50% retracement of the very recent drop.

 

But what is we are looking further than hours or days? If your time frame is measured not measured in days but rather is weeks and months, what do we have?

We can go back to Q3 of 2012:

[5]

 

Now its a 25% drop, and gold has retraced almostĀ  a third of the fall.

 

Last chart: 3 years going back to 2011 highs:

[6]

 

In this case, its a full 30% drop, and the retracement is a little over a quarter of the drop.

 

When I look at any chart post-collapse, I want to know three things:-

1) How has it behaved in prior pullbacks?

2) How is the volume and quality of the trading around the present bounceback? (more specifically, is it robust? Are we looking at short covering or are new buyers coming?)

3) How quickly does the bounceback fade?

These can help us to determine if this is a mere stabilizaton, a legitimate turnaround, or a pause before the next leg down.


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2013/04/contextualizing-retracements-by-time-frame/

URLs in this post:

[1] repeated: http://www.reuters.com/article/2013/04/25/markets-precious-idUSL3N0DC49K20130425

[2] usual: http://www.upi.com/Business_News/2013/04/16/Stocks-regain-ground-on-upbeat-reports/UPI-73821366147295/

[3] suspects: http://www.zerohedge.com/news/2013-04-24/gold-retraces-half-record-plunge

[4] Image: http://www.ritholtz.com/blog/wp-content/uploads/2013/04/Gold-daily.png

[5] Image: http://www.ritholtz.com/blog/wp-content/uploads/2013/04/GLD-Weekly.png

[6] Image: http://www.ritholtz.com/blog/wp-content/uploads/2013/04/Gold-3-yr.png

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