Let’s flash back to May 2006, when gold prices were behaving in a similar fashion as today. The yellow precious metal saw almost a 40% rally over the course of a couple weeks.
The SPDR Gold Trust (NYSE: GLD) – an ETF that trades at about one-tenth the price of gold and actually holds gold in a trust – saw its share price surge from $52 to almost $72 in a matter of two months. Many called this a “parabolic move” at the time.
A parabolic move essentially means that the price of a security (or a commodity) makes a sharp, fast rise, usually out of a basing pattern and thus becomes overextended, usually within shorter durations (two weeks or less). Often, when a security makes a parabolic move, the amount that it rallies is beyond its “typical” behavior.
September 2010
If you look at the weekly chart below of GLD, on the bottom you will see a current weekly ATR, or average true range, of about $2.90. This basically means that the average TOTAL movement of GLD in any given week’s time is about $2.90 (at least it has been for the past 14 weeks).
Over the past eight weeks, GLD has moved from about $112 – $128, which is about 14%. If you divide eight weeks by this dollar change of $16, that’s about 50 cents per week. That move is certainly not abnormal, so the stock has really not made any extraordinary moves in term of volatility….