AN IN DEPTH LOOK AT GOLD - by Rambus
First we’ll take a look at gold and see where we stand since the big breakout. The big H&S consolidation pattern is still in play. Sometimes a line chart can take away some of the noise that a bar chart can create and show a clearer picture of the chart pattern. Below is a 3 year daily look at a line chart of our H&S consolidation pattern that we have shown in the past, before the breakout. The beauty and symmetry of this particular H&S is as pretty as it get in Technical Analysis.
The neckline is the brown area that acted as resistance during the formation of the H&S consolidation pattern. When we broke above the neckline that put the pattern in play to the upside. Now what you look for is the backtest of the neckline for confirmation of the pattern and we are in the process of doing that right now. We are making an A B C retrace off the move up to 1225 with A and B completed and C now well under way. The brown neckline is the line in the sand. Above bullish. Below bearish. Simple, straight forward Technical Analysis.
Next I would like to show a long term monthly bar chart (see above) so you can see how our H&S consolidation pattern fits into the really big picture. Our current H&S consolidation pattern is at the top right side of the chart. Just a couple of things of interest about the formation of our H&S pattern. First, notice where the head found support during last years major decline, right on an old top from way back in 1980 at 725. They say old tops and necklines never die they just slowly fade away. Now take a look at the right and left shoulder of our H&S pattern. The bottom for each shoulder found support at the 850 area right at another old high. One more note of interest is the colored patterns that have made up this beautiful bull market uptrend since it began with a double bottom in 1999 and 2001. Since the double bottom low we have had 3 triangles, one bullish rising wedge, and now our H&S consolidation pattern. This is text book stuff if your into Technical Analysis.
Next I would like to zoom in now for a close up look of our H&S consolidation pattern and the breakout that followed (see chart above). The neckline is our line in the sand, above it bullish and below it bearish. Notice the blue triangle below the neckline that formed our right shoulder. A lot of times when a triangle pattern is forming the first move down will take on the shape of a bull flag or an A B C decline.
When you have a beautiful bull flag like the red one at the beginning of the blue triangle and it doesn’t complete its move, its a sign that a bigger consolidation is going to form and that is exactly what happened over the next 5 months or so creating a 6 point triangle. You can see how each swing within the triangle pattern became smaller and smaller as the bulls and the bears were slugging it out trying to gain control of the pattern.
As we are in a bull market the odds favored the bulls would win the fight and we would eventually breakout thru the top of the triangle. It just became a waiting game for the breakout to occur. Remember we want to look for a backtest to the breakout area for confirmation of the move up and as you can see we bounced off the big black neckline, overhead resistance, and pulled back to the top blue rail of the triangle. Again this is perfect TA. Now look at the breakout of the the big neckline of our H&S consolidation pattern. We had a four week breakout and backtest before the bull run actually got under way.
We are now in an A B C correction off of the high at 1225. This is where the art of Technical Analysis comes in. Every TA person will have their own version of what is taking place. This is my version of how I think things will play out over the next 4 to 6 months. First, notice the red bull flag from the blue triangle below the neckline and how it started the process of making the triangle right shoulder. We are doing the exact same thing right now. Some will call our current red pattern a bull flag which will be technically correct but I believe everybody and their brother is looking for this gold bull market to take right off again to new highs.
To confound the most players the markets will do what most don’t think should happen and that is how I’m viewing the Technical situation at present until something tells me the pattern is broken. This is a very bullish setup being built right now with one pattern below the neckline and one consolidation pattern above the neckline, our current beginnings of a consolidation pattern. It is going to take some time to build out but I think we will build some type of consolidation pattern on top of the neckline, whether it is a triangle or flat top or whatever the pattern is it will have bullish implications going forward.
Please do your own DD as this is just one mans opinion in a sea of many.
All the best to everyone…..Rambus
Xiphos Note: My current views are considerably more bearish with regards to where gold and stocks will be 6-12 months from now. I think i’m seeing the beginning of another deflationary selling wave coming - think double dip recession… I will post more details a little later.
