Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Silver Break Out From Ascending Triangle Price Pattern

Commodities / Gold and Silver 2010 Sep 13, 2010 - 03:20 AM GMT

By: Howard_Katz


Best Financial Markets Analysis ArticleBelow we see the chart of silver (weekly basis) from its peak in March 2008.  Clearly drawn is a triangle which is almost ascending.  (The top line would have to be horizontal.)  We can regard it either as an ascending triangle or a symmetrical triangle.  This triangle broke out on Sept. 3.

A triangle is often called a coil in technical analysis because it suggests a spring being compressed so that it is ready to move rapidly in the opposite direction.  A triangle is also a consolidation formation.  This means that the odds are, even before the breakout, that after the triangle is over the good will continue to move in the same direction it moved before the triangle started.  We can imagine a major term bullish force dominating before the triangle; then an intermediate bearish force enters and balances the bullish force for a while (giving us basically a sideways market).  When the upper line of the triangle is penetrated, this is a sign that the bearish force has been overcome and that the major term uptrend will resume.

Chart patterns such as the above are discussed in the book by Edwards and Magee, Technical Analysis of Stock Trends, and I have found them a very useful tool for prediction of the markets.  Edwards and Magee say that such patterns have a 70% chance of working out as predicted.  And it is possible to make money on an event when you have a 70% chance of being right on each trade.

However, 70% is not my style.  It requires too conservative a trading strategy.  So I have developed other techniques which increase that percentage.

My basic philosophy is that the universe is governed by the law of cause and effect.  This is why science has been so successful in finding out so many relationships.  If B occurs shortly after A occurs and if this happens again and again and again, it becomes more and more likely that A causes B.  If B continues to occur shortly after A for the indefinite future, then the probability that this is just luck becomes infinitesimal.  In other words, the cause and effect relationship has, in practical terms, been proven.

Sad to say, at this stage of technical analysis there is no interest in looking for the causes of phenomena.  Technicians say, “I don’t care why it works, but it works.”  In my view, this does not past muster.  Most of the knowledge of the human species has been accumulated by the use of the law of cause and effect.  The problem is that, if you don’t know why it works, then you don’t understand it and will not be able to design an experiment to accurately test it.

Chart patterns do work, although the original chartists could not tell us why.  However, I have solved that problem.  It must be kept in mind that the speculator makes his money by correctly valuing economic goods.  Since the future value of goods is always uncertain, all that it is necessary for the winning speculator to do is to come closer to predicting future events than the other speculators.  In other words, the winning speculator predicts the markets better than the other speculators.

In words of one syllable, we need to look for areas where the vast majority of other speculators are irrational.  Is there such an area?

Fortunately, there is.  About 800 years ago, the philosopher Thomas Aquinas taught that every economic good has a fair price.  The fair price is the price which allows the merchant who sells it to make enough money that he is able to live in the style fitting to his profession and station in life.  Unfortunately, this is not a clear definition.  Who decides what style and which station in life?  And after this has been decided, what if the market does not provide him with enough profits to enjoy this life style?  He can protest all that he wants.  He can shout, “unfair, unfair.”  But that will not give him the life style he wants.

Fortunately for the science of economics, Adam Smith came along 6 centuries later and pointed out that there was no such thing as a fair price.  All there was was the price agreed upon by buyer and seller.  If they both agreed to it, who has the authority to say that it is not fair?

And fortunately for us rational speculators the vast majority of the people trading the markets have, to this day, not read Adam Smith.  They are back in the 12th century with Thomas Acquinas arguing that every good has a fair price.  But as we have seen, there is no fair price, and they do not know how to find it.

So what do all these people who believe in the fair price do?  They substitute the price which stands out in their minds.  For example, if a commodity moves sideways for a long time, then many people assume that this price is the fair price (e.g., gold at $1,000/oz. from March ’08 to October ’09 or silver at $20/oz. from March ’08 to ‘September ’10).  Many traders then assume that this is the fair price.  If the good then moves up, short term traders will conclude that it is too high.  Some will back away from their buying.  Others will take profits.  This diminished buying and increased selling will cause a down move which, son-of-a-gun, takes the good back down to the believed fair price.  In the case of gold, this “fair” price, as noted, was $1,000.  It moved up from $1,000 to $1,225 (Dec. 2009), and there was then a down move which took gold back down to $1,050 (Feb. 2010).  This was unusual in that this gold bottom did not go all the way down to $1,000.  Experienced chartists know that something like 95% of all such down moves will carry all the way back to the “fair” price.  The existence of that 50 point gap stands out like a sore thumb.  And the experienced chartist understands that this gap was caused by the major term bullish force, which distorted the normal pull back in a bullish direction.  That 50 point gap is a giant, long term signal that this major term gold bull market is unusually powerful.  And the way we know this to be true is via the theory of the fair price.

In the same way, after an advance in silver there will probably be a down move back to the $20 level (perhaps slightly lower because the “horizontal” line of the triangle is actually slanting slightly downward).  If this down move holds above the expected pull back point (slightly lower than $20), then this will confirm the very strong signal in gold, and we will be able to predict an extremely strong major term bull move in the precious metals for the foreseeable future (meaning until we get a signal of a major term top).

In a similar manner, this mistaken belief that there is such a thing as a fair price causes the kinds of moves in technical charts which were discovered empirically by Edwards and Magee and which are known as charting theory.  Although Edwards and Magee did not know the cause of these moves, their cause is the fact that the overwhelming majority of traders believe the medieval economics of Thomas Aquinas and have still not learned the modern economics of Adam Smith.

One might note that Adam Smith published Wealth of Nations in 1776, well over 200 years ago.  Isn’t it about time that people learned which side is up?  Every time they make one of these mistakes they lose money to seasoned chartists like me.  They lose, and they lose and they lose, but they never learn.  Some of them are so stupid that, when they lose, they do not even know it.  Suppose an “investor” buys a 20 year bond for par and redeems it at the end of the 20 years (again at par).  He has received a yield on the bond, but this yield has been offset by the depreciation of the currency.  He has lost real value.  But since he has gained value in nominal dollars (like the starving people of Zimbabwe), he thinks he is a winner.

You may have met this guy.  He was just ahead of you the last time you walked into the convenience store.  He bought a lottery ticket, and the machine told him, “You’re a winner.”  Not so.  The machine lies.  He is a loser, and he will probably be a loser for the rest of his life.  Fortunately, there are a great many suckers (believers in Thomas Aquinas) around, enough to last for your and my lifetime.  That is why you and I do not have to work for a living.

All chart patterns have what is called a price objective, that is, a point representing the minimum advance or decline once the pattern breaks out.  However, for triangles the minimum objective is not a point.  It is a line.  This line is drawn from the beginning of the triangle (at $21 in March 2008) parallel to the bottom (ascending) line of the triangle.

What is astonishing about the precious metals group is that several major indexes have almost the exact same triangle.  The HUI has it.  The XAU has it.  Several of the individual gold stocks have it.  All of these patterns reinforce each other.  But since the patterns are appearing in so many instruments and the probability of each succeeding is 70%, then the resulting probability is far higher.  What is even more astounding is that the price objective lines are very steep, implying a rapid advance.  For example, the price objective line in silver (p. 1) started from 21 in March 2008 and is advancing at a rate of about 50% per year.  It is currently at $60.  A year from now it will be at $90.  We can not say when silver will hit its price objective line, but the longer it takes to hit it the higher it will be at the time.

Right now two of these triangles have broken out (gold in Oct. 2009 and silver a week ago).  Since this predicts that both of these goods will advance, they will also drag along many of the individual gold stocks.  Therefore, it is a slam-dunk that the XAU, the HUI and most of the individual gold/silver stocks will also break their patterns to the upside.  In short, things are shaping up for a massive move in the entire precious metals group, and this move is entirely consistent with the fact that the Federal Reserve has more than doubled the U.S. money supply over the past 2 years.  Just to put this in context, over the 1970s the U.S. money supply almost doubled over a period of 10 years (about 7% increase per year).  By 1979, the Consumer Price Index rose by 13.3%, and in that year the price of gold multiplied by 3.8 times.  I am not yet ready to make a firm prediction for the gold price a few years hence, but my basic sense is that it is going to surprise everyone to the up side.

My vehicle for aiding the adherents of Adam Smith to make money in the financial markets is the One-handed Economist.  This is my newsletter, published fortnightly (every 2 weeks).  The next issue will be dated Sept. 17 and mailed the following day.  The price is $300 per year, and you may subscribe by going to my website: and pressing the Pay Pal button.

Or, you may subscribe via U.S. mail at a $10 discount ($290).  Send to: The One-handed Economist, 614 Nashua St. #122, Milford, N.H. 03055

Remember that this gold bull market began with a rounding bottom around the turn of the century and that such formations tend to start slowly and accelerate to the upside.  They are moving up most rapidly just before the top.  Thank you for your interest.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules