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Topic 1: Can Gold Maintain its Glitter?

The monthly chart of the SPDR Gold Trust (GLD) has reached one of the most extreme overbought levels in its 20-year history. The current RSI is just above 85. Historically, when the RSI reaches this kind of level, it has often marked a top in GLD.

That said, overbought conditions can persist longer than most expect. These setups are often resolved through either a pullback in price or a pause in the price increase for an extended period. Often, it’s a mix of both. This means GLD could simply go sideways and allow the RSI to reset to a more reasonable level without any sharp decline.

Still, based on prior examples, the odds of a pullback may be rising. The middle Bollinger Band sits around 238, which would be a logical first stop if momentum fades. A deeper pullback could find support near the lower band around 161. Adding to this, the current Bollinger Band width is the widest it has been since GLD launched. Historically, extremes in band width tend not to last long, and they often precede some form of volatility reset.

Topic 2: IWM Eyes a Bigger Move

Small caps are trying to break meaningfully higher. Since the lows back in April, the iShares Russell 2000 ETF (IWM) has climbed above its middle Bollinger Band, which is often an early sign of a shift in momentum. Historically, when IWM breaks through that level, it tends to follow through to the upper band.

If that pattern holds again, the next logical stop would be around 228.16. But the bigger question is whether this is just a short term technical move or the start of a broader trend.

There are some tailwinds starting to line up. A loosening regulatory environment and rising investor interest in undervalued names could all help unlock value in small caps. This part of the market has been overlooked for a while, and when sentiment turns, the moves can be sharp.

If IWM can push through resistance and hold it, this breakout could turn into something much more meaningful. We’re watching it closely.

Topic 3: The 10 Year Yield Is Coiling. A Move Is Coming.

The 10 year Treasury yield has been consolidating since peaking in late 2023. That consolidation now looks like a pennant pattern, which often signals continuation. If that plays out, we could be looking at a sharp move higher in yields, which would have broad implications across equity markets, real estate, and credit.

At the same time, we can’t ignore the possibility of a breakdown. A move lower in yields would likely reflect softer economic data or renewed expectations of Fed rate cuts. That would be a tailwind for rate-sensitive sectors and could reignite some risk appetite.

This setup is worth watching because the pattern is nearing its apex. The trading range has tightened, and we are likely just days or weeks away from a breakout. Whichever direction it moves, the impact will ripple through portfolios, and we’ll be paying close attention to confirm the signal.

Link: https://technicaltwist.substack.com/

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