The SPDR Gold Shares (GLD) has shown remarkable strength in 2024, soaring 40% between January and October. For those who missed the rally, November offers a potential opportunity as GLD has pulled back 8% from its all-time highs, creating a dip-buying scenario. To validate a bullish outlook on GLD, I rely on specific technical indicators that align with my trading strategy. These setups are detailed extensively in my book, ” Mean Reversion Trading .” RSI (Relative Strength Index): When the RSI drops below 30, it indicates an oversold position on a stock or ETF. After this happens, traders need to wait for the RSI to pop above 30 to take a bullish stance. With GLD, the RSI dropped all the way down to 33 nearing oversold conditions and is sharply bouncing back up from there. DMI (Directional Movement Index): The DMI is composed of three lines: DI+ (green line), DI- (red line), and ADX (blue line). When the DI- (red line) is above the DI+ (green line), it indicates a downtrend. However, when the DI lines start changing direction, it indicates a possible change in the current trend. Note that both DI- and DI+ are changing direction, which provides the first indication of a possible trend change. To take a bullish trade on GLD, I’m using a trade structure called a “bull call spread.” The trade With GLD hovering around $242.30, I need to buy a $242 call and sell a $243 call as a single unit. As GLD fluctuates in price, one could build up a position with multiple such spreads. Eg. If GLD drops to 240, a 240-241 spread can be added to the position. Here is my exact trade setup: Buy $242 call, Dec 6th expiry Sell $243 call, Dec 6th expiry Cost: $50 Potential Profit: $50 If GLD trades at or above the short strike (i.e. $243) by the expiration date, this trade could yield a return of 100% on the amount risked. With 10 contracts, this equates to risking $500 to potentially gain $500 -Nishant Pant Founder: https://tradingextremes.com Author: Mean Reversion Trading Youtube, Twitter: @TheMeanTrader DISCLOSURES: (Nishant currently has a GLD $241-$243 call spread expiring on 12/6/2024.) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
