How the Gap in GLD ETF Shares Was "Mysteriously" Erased
9-16-2010: An Investigative Report on How the Gap in GLD ETF Shares Vanished
If you take a look at the price of GLD ETF shares on:
9-13-2010: Close was 121.58
9-14-2010: Open was at 122.92
leaves a GAP of 1.34.
But if you LOOK AT A DAILY CHART OF GLD, the GAP disappeared as compared to the 1 min, 15 min, and 60 min charts on Schwab's StreetSmartPro, which show the gap clearly!
So what explains the ABSENSE OF THE GAP on the daily chart?
First let me say that the parties responsible for reporting the data may be entirely "justified" in that they may have used normal acceptable procedures in reporting the data the way they did. You can decide for yourself whether you think the gap should be shown or not shown. I am still awaiting calls back from the responsible parties and will update this page accordingly when I receive their input.
HERE ARE THE FACTS: Charles Schwab's desk was kind enough to report to me the following (which was simply serving as an information source; they have nothing to do with the numbers that they get from the databases they use):
There were 2 million shares "marked as derivatively priced" which appear to have been stock options that sold at a price of 121.55 on 9-14-2010. They could not tell me the time this occurred.
So what's the big deal?
The big deal is that GAPS in the GLD chart are often filled by ACTUAL TRADING OF THE GLD ETF shares. It means that investors when looking at the daily chart do not see that in fact no shares traded through the entire range of that GAP!
And what is even MORE important is that the 3 times GLD ETF shares attempted to break out by GAPPING UP once in May and twice June, the breakouts eventually failed.
That means THIS GAP UP may fail too.
BUT INVESTORS DO NOT EVEN SEE THE GAP ON THE CHART!
I personally would prefer to see the gap left in the daily chart. I cannot tell you whether it truly should be corrected. It depends on the rules. They may have followed the rules to the letter.
Now even if this pricing maneuver is "correct" and "honest" which IT MAY BE, that does not change the fact that the GLD GAP is still there in an important sense, which is that NO SHARES TRADED BETWEEN the prices of 121.58 and 122.92 where GLD opened on 9-14-2010. So the GAP is functionally there, even though traders may or may not be aware of it depending on what charting system they look at and in what time frame.
CONCLUSION:The GLD gap between 121.58 and 122.92 is STILL THERE in functional terms and GLD may well trade down to fill that gap whether it's on the daily chart or not! GLD has failed breakouts based on GAPS the last 3 times it tried it.
FULL DISCLOSURE: I own no GLD shares and I am also not short those or any other shares of gold at this time. I like the GLD as a trading vehicle and recommend it. I also wish to state that I believe the NYSE handling of the so-called "Flash Crash" from their end was the right way to do things, so I am sure this can all be explained in time. I will provide the follow-up when I receive their callbacks. The important thing for GLD investors is that as explained, the gap is still "functionally there." This is simply my personal opinion. Trade based on your own understanding and obtain an advisor's input as needed.
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