Narrowing Triangle Formation Will Force Gold Breakout....But Which Way?

Gold spent most of the winter of 2010 trading in a narrowing sideways range. Looking at the (GLD) ETF, the range is slightly uptrending due to higher lows, making it somewhat of an "ascending triangle" formation. This type of pattern of decreasing volatility (also can be seen in the Band Width Indicator at the bottom of the below chart), will eventually lead to a big breakout.

The direction of the breakout? Signs point to an bullish upside move, but it's not certain. Daily Percent R has mostly stayed above the 50 mid-level and GLD is trading above its uptrending 20 and 40 day Exponential Moving Averages (purple and red trendlines at top). But, MACD and DMI aren't showing much sings of strength, in my view.

Targets for GLD should the breakout occur soon? Upside, 145 looks a likely target, downside, 120 should be strong support. Advanced option traders who want to bank on a volatility expansion could consider buying GLD option volatility here with it priced around 18%.

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