Spread trading strategies: Gold and S&P 500

Written by Phil Seaton & Robert Stewart Friday, 06 August 2010 13:57

Our last post of spread trading strategies focused on Gold and the S&P 500 and we’re going to continue with those two markets today.

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Beginning with Gold, we last said that we had a bull harami pattern, which was indicating that the bears were running out of steam. We also said that there was support around the $1150 area and that the market was still above the 200 day moving average.

The bull harami pattern has so far proven to be the short term bottom and we have now had 5 successive up days in the December Gold contract. Yesterday the market pierced the $1200 level intra day, reaching a high of $1205.5 but was unable to close above that psychological number and pulled back to $1195.9 on a close. We need to see a close above $1200 in this market soon otherwise we may see a pullback to the bottom of the bull harami pattern.

The long term trend is still up for gold but a break above $1220 resistance will be required before entering longs. For now only spread trading strategies from the long side should be considered as the long term trend is up. I would not consider shorting this market yet for that reason and would need further downside confirmation to change that point of view.

On to the S&P 500 September contract. The S&P 500 has so far not pierced the resistance levels seen on the 21st June, although it is very close to doing so. The Dow and FTSE have both already cleared that resistance level. At the time of writing this morning the September contract is at 1125 so it is very likely that we will get a test of resistance today. Since the resistance at 1129 is major (it has held since 18th May) a breakthrough may provide the impetus for a move higher towards 1170.

Even if the S&P 500 does clear this level the long term trend is down, so I won’t be taking this breakout if it does come as it is counter to the long term trend

Good trading

Phil Seaton & Robert Stewart