Best of the Week
Most Popular
1.Oil Wars 2016 - US vs Russia vs Saudi Arabia vs Iran - Nadeem_Walayat
2.Crude Oil Price Crash Triggering Global Instability, Trend Forecast 2016 - Nadeem_Walayat
3.Stock Market Crash - Last Week was The 2nd and Final Warning... - Clive_Maund
4.Stock Market Crash Apocalypse or Bull Market Severe Correction? - Nadeem_Walayat
5.TShipping Said to Have Ceased… Is the Worldwide Economy Grinding to a Halt? - Jeff_Berwick
6.Crude Oil Price Crash Catastrophe, Independant Scotland Literally Begging to Rejoin the UK - Nadeem_Walayat
7.Summers: Global Economy Can't Withstand Four 2016 Fed Hikes - Bloomberg
8.Gold And Silver: New World Order: Public Be Damned, Preferably Dead - Michael_Noonan
9.Rigged U.S. Ttreasury Bond Market Double Barreled Hidden Q.E. To Infinity - Jim_Willie_CB
10.Major Stocks Bear Market Awakening - Zeal_LLC
Last 5 days
Gold Stocks Something has Changed - 6th Feb 16
UK Interest Rates, Economy GDP Forecasts 2016 and 2017 - 6th Feb 16
Gold Price, Mining Stocks Rocket Higher - 5th Feb 16
Crude Oil Price Bottoms and Blues - 5th Feb 16
Gold and Silver: Ripe for a Recovery! China May well Change the Game - 5th Feb 16
How Pension Plans are Responding to Financial Repression - 5th Feb 16
Senior Gold Producer Goldcorp Takes Large Stake in Nevada's Gold Standard Ventures - 5th Feb 16
Tips for Smart Oil and Natural Gas Investing 2016 - 5th Feb 16
Another Corporate Giant Is Leaving the U.S. – What This Means for You - 4th Feb 16
TPP is Economic Warfare, Trade Can Make Everyone Worse Off / Governments are Stupid - 4th Feb 16
Gold and Stock Markets Inflection Points Galore - 4th Feb 16
Putin Cries Dyadya (Uncle), Is Saudi Arabia Listening? - 4th Feb 16
Gold Price Golden Bottom? Video - 4th Feb 16
Look North for Value-Priced Growth in Healthcare Biotech Stocks - 4th Feb 16 - TLSReport
BrExit EU Referendum - Britain's FINAL Chance for Freedom From Emerging European Superstate - 4th Feb 16
HUI Now Confirming Gold Price Move Higher - 4th Feb 16
Crude Oil Price Forecast 2016 As Good As It Gets - 4th Feb 16
Gold and Silver More 'Flight To Safety' Active February - 3rd Feb 16
Raytheon Company: A Defensive Stock for a Defensive Market - 3rd Feb 16
Is Silver Really a Weak Link - 3rd Feb 16
Gold to Beat Stocks 2016? - 3rd Feb 16
David Chamberlain Cameron, Britain's Last Chance for Freedom From Emerging European Super State - 3rd Feb 16
EU UK Draft or Daft Agreement By Donald Tusk to Members of the European Council in Full - 2nd Feb 16
Europe: Why It's Going to Get a Lot Worse Before It Gets Better - 2nd Feb 16
The Next Generational Bust Is Coming, Stock Market 70% Collapse - 2nd Feb 16
The Coming Stock Market Decline May be a Monster - 2nd Feb 16
S&P 500 Has Likely Entered a New Bear Phase - 2nd Feb 16
How and Why To Move Your Assets Offshore Before the Financial Collapse - 2nd Feb 16
Central Bank Created Silver Price Rally - 1st Feb 16
The Fed Is Not Hiking Rates: Risk Assets To Perform - 1st Feb 16
US Dollar and US Treasury Bonds Big Picture - 1st Feb 16
BOJ Negative Interest Rates Central Banking Crime Syndicate's War on Cash for Triggering Panic Consumption - 1st Feb 16
Elites Set to Wipe Out Stock Market Shorts Before Next Downwave... - 1st Feb 16
Stock Market A-B-C Correction Unfolding - 1st Feb 16
Nice week for Gold : It’s All about Sentiment - 31st Jan 16
Silver Price Breaks Higher on Rising Anxiety - 31st Jan 16
Stocks Bear Market Rally Underway - 30th Jan 16
Gold And Silver Current Prices Do Not Matter - 30th Jan 16
Gold Price Potential Upside 2016 - 30th Jan 16
Stock Market Bears Pulverised by BOJ Knock Out Punch, Non Technical Take Video - 30th Jan 16
Lacy Hunt: Inflation and 10-Year US Treasury Yields Headed Lower - 30th Jan 16
The Curious Case of Copper... - 30th Jan 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Global Financial Crisis 2016

Gold Market sectorwide Buy Alert

Commodities / Forecasts & Technical Analysis Jan 28, 2007 - 05:11 PM GMT

By: Clive_Maund

Commodities Gold is looking technically stronger than it has done for the past 16 months. It would have escaped the notice of many that it broke out last week from a little-known technical pattern known as 3-arc Fan Correction. This pattern was not detected earlier because it is rather rare, and instead attempts were made to define the action in gold since last May as some kind of triangle, which could, of course, be bearish. However, a 3-arc Fan was clearly identified in the Streettracks chart last week on www.clivemaund.com, prompting a re-examination of the gold chart, whereupon it became evident that a similar pattern exists in gold. This is very important, because it largely sweeps away lingering doubts about where gold is headed. This is because these patterns are very bullish, and seldom break down.


We will now examine this pattern on a 1-year chart for gold. The first steep arc of the correction pattern was formed by gold dropping rather precipitously from its May high, where it was extremely overbought, way ahead of its moving averages. A sizeable relief rally followed which led to renewed decline beneath the second fan downtrend line that took the price down to successfully retest support above the June low. Gold then rallied again, breaking above the 2nd fan line only to once again go into decline beneath the much less steep 3rd fan line. Unknown to most of us at the time, it was contact with this fan line at the start of this year that triggered the plunge which got the year off to such a bad start - although we had anticipated just such a drop for other reasons.

Gold 1 year chart buy

There are a couple of important points to note about these fan corrections. The first is that what they are is a succession of progressively less steep downtrend lines that contain the price, and indicate a diminution of selling pressure over time - by the time the fan correction ends with a breakout such as we saw last week, significant selling pressure has quite simply been exhausted. This brings us to one of the rules that applies reliably to these patterns, and that is that once the price has succeeded in breaking out above the 3rd line of the fan pattern, that's it, the correction is over and the stage is set for a substantial new uptrend. This is exactly the position we find ourselves in now.

Now compare the gap that existed between the price of gold last May and its moving averages with the gap that exists now. Last May it was horrifically overbought with an enormous gap having opened up with its moving averages. Now, however, the gap is comparatively minor, and all 3 moving averages are in bullish alignment. This makes for big upside potential. Note that the averages used here are 50, 200 and 300-day. The reason for using the 300-day moving average will become readily apparent when we look at the 3-year chart lower down the page, where it is evident that gold has ridden this moving average all the way up as its bullmarket has progressed.

Because gold stalled out again at the zone of heavy resistance centered just above $660 last week and didn't actually end the week up all that much, many investors haven't cottoned on to the significance of last weeks' breakout. So let us be absolutely clear, it was MASSIVELY SIGNIFICANT, and we shall be much obliged to those sellers last week who are providing us with a last chance to board the train before it leaves the station. This is the time to load up with promising stocks across the board. Of course, we must recognize that no technical pattern guarantees success, and there is, as ever, a chance that the pattern will abort and break down, but if it does we can escape with a minor loss by employing the strategy of exiting positions in the event that gold breaks back down below the 3rd fan line by a margin of more than $5 - $7. This proviso affords an excellent risk/reward ratio to those buying stocks here.

Readers may recall that in the last Gold Market update it was mentioned that Straddle options (a combination of Call and Put options) were an attractive proposition, as gold was on the point of a big move, which could be to the downside, and that an article on this strategy would be posted soon on the site. In the light of the subsequent identification of the fan pattern in gold and the developments over the past week, however, the picture is viewed as being more outright bullish, so anyone considering options should go for the Calls and forget the Puts. Before leaving the 1-year chart observe the position of the MACD indicator shown at the bottom of the chart. This is only slightly overbought and provides a further indication that there is plenty of upside potential at this juncture.

gold 3 year chart buy

 Learn how to Trade Elliott Waves

Now we will review the 3-year chart as this puts the action of the past year into perspective, thus giving us more of an idea of what to expect going forward. On this chart we can see how the 3-arc Fan Correction has served to unwind the severely overbought condition that had developed by April - May of last year, as indicated by the yawning gap with the moving averages which has now largely closed up. The identification of the fan correction means we can be much more assured that gold is going up from here than was the case when we were trying to find a triangle fit for the trading range.

This is because triangles can break either way, and a triangle can therefore be a top, whereas this fan correction is definitely bullish, and we have the added benefit of a close exit point if it aborts. In addition to the usual 50 and 200-day moving averages, the 300-day moving average has been appended to both charts. This is because, throughout the bullmarket, gold has consistently found support near this average, as it did again in October and in the early days of this month. Note also how the price and the bullishly aligned moving averages are now bunched quite closely together, a circumstance that frequently precedes a powerful advance, as was the case in the late Summer of 2005.

In conclusion, this is a most auspicious picture. Gold is a flat-out buy here, as are most Precious Metals stocks. The reaction late last week is viewed as providing probably the last opportunity to buy both gold and PM stocks at favorable prices before a powerful advance gets underway, although it is quite common after a breakout above a fan line for the price to drift back and run along the top of the fan line for a while before turning higher - if this happens it will provide an opportunity to buy at even better prices. We have a relatively close exit point if things go wrong, as stated above, as positions should be closed out if gold drops $5 - $7 below the 3rd fan line of the fan correction. Thus we have a very favorable risk/reward ratio. While developments in the gold chart clearly have major implications for the silver price, a similar 3-arc Fan Correction has not been identified on the silver chart.

We will be reviewing a range of US stocks suitable for purchase on www.clivemaund.com this weekend.

By Clive Maund
CliveMaund.com
The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis. Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications.


© 2005-2016 http://www.MarketOracle.co.uk - 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

Biggest Debt Bomb in History