Best of the Week
Most Popular
1.US Dollar Crashes, Gold And Bitcoin Skyrocket As Economic Recovery Lie Is Exposed - Jeff_Berwick
2.Now Obama Warns Americans to ‘Be Prepared’ for Disaster… What Does He Know? - Jeff_Berwick
3.EU Referendum - Britain's Immigration / Migrant Crisis Explained - Nadeem_Walayat
4.EU Referendum - British People vs Establishment Elite, Vote LEAVE an Act of Defiance! - Nadeem_Walayat
5.Prominent Billionaire Investors Warn of Financial Crash, Quietly Position Themselves - MoneyMetals
6.Bankers Warn of BrExit Financial Armageddon if British People Vote for Freedom - Nadeem_Walayat
7.Bad U.S. Jobs Report Prompts Stocks Bear Market Rally Towards New All Time Highs! - Nadeem_Walayat
8.Gold And Silver – Friday May Have Marked A Pivotal Turnaround - Michael_Noonan
9.EU Referendum - British People vs Establishment Elite, the Illusion of Democracy and Freedom - Nadeem_Walayat
10.Felix Zulauf: Monetary Stimulation Creates Bubbles, Not Prosperity Nor Growth - GoldandLiberty
Free Silver
Last 7 days
Gold And Silver: Security, And BREXIT - 25th June 16
Dow, Euro & Brexit Recap - 25th June 16
Resistance Holding Gold Stocks after Brexit - 25th June 16
Venezuela vs. Ecuador (Chavismo vs. Chavismo Dollarized) - 25th June 16
Gold, Silver And PM Stocks Summer Doldrums Risk - 24th June 16
Here’s Why China “Economic Hard-Landing” Worries Are Overblown - 24th June 16
Jubilee Jolt: Markets Crash, Gold Skyrockets as Britain Takes Brexit - 24th June 16
BrExit Morning - New Dawn for Britain, Independence Day! - 24th June 16
LEAVE Wins EU Referendum - Sterling and FTSE Hit Hard, Pollsters, Bookies and Markets All WRONG! - 24th June 16
Trading BrExit - British Pound Plunges, FTSE Stock Futures Slump on LEAVE Shock Referendum Win - 24th June 16
EU Referendum Shock Results Putting BrExit LEAVE in the Lead Hitting Sterling Hard - 24th June 16
Final Opinion Poll Gives REMAIN 52% Lead, Bookmakers, Markets and Pollsters ALL Back REMAIN Win - 23rd June 16
Does BREXIT Matter? Outlook for Sterling - 23rd June 16
Keep Calm and Vote BrExit - Last Chance to Break Free of EU Superstate - 23rd June 16
Here’s the Foreign Policy Trump and Clinton Really Want - 23rd June 16
Details Behind Semiconductor Stocks Leadership - 23rd June 16
Trading BrExit - Stocks, Bonds, Sterling, Opinion Polls, Bookmaker Odds and My Forecast - 23rd June 16
BrExit Looks Set to Win EU Referendum, Final Opinion Polls Give LEAVE Lead Over REMAIN - 22nd June 16
Proof that the Gold Bears are Wrong - 22nd June 16
Here’s a Trillion-Dollar Investment Opportunity for Those Few with No Debt - 22nd June 16
BrExit to Save Europe from Climate Change Refugee Migration Apocalypse - 22nd June 16
Increase In U.S. Rig Count Will Not Cap Oil Prices - 22nd June 16
Are Copper and China Stocks Set to Rally? - 22nd June 16
SPX May Break Its Trendline - 22nd June 16
Believe it or Not: More Kids Live At Home Now than Since The Great Depression - 21st June 16
EU Referendum Latest Opinion Polls Show LEAVE Halting REMAINs Surge - 21st June 16
British Pound Outlook - BREXIT, Europe and You - Does your vote matter? - 21st June 16
Fascist Victory Behind the European Union - 21st June 16
EU Referendum Opinion Polls Analysis Shows Strong Momentum in REMAINs Favour - 21st June 16
Is It Time to Dump Gold and Buy Platinum? - 21st June 16
Could Central Bankers Be Gold and Silver's BIGGEST Allies? - 20th June 16
Words Still Mean Things – Brexit With Graham Mehl - 20th June 16
Baroness Warsi the Manchurian Candidate Quits LEAVE for REMAIN, Boris Johnson Next? - 20th June 16
FTSE Soars, Stock Markets Bounce on LEAVE Polls Surge, Bookmakers Widen BrExit Odds - 20th June 16
Brexit Would Trigger Devolution of Europe - 20th June 16
Stock Market Week Of Uncertainty - 20th June 16
Will Gold’s Bullish Price Chart Outperform Gold’s 5 Bearish Indicators? - 20th June 16
Bonds And Stocks At All-Time Highs: Are Markets Confused Or Broken? - 20th June 16
Silver Sleeping On the Job - 19th June 16
BrExit Odds Sink, REMAIN Polls Boost by Jo Cox Killing by Radical Right Extremist, Conspiracy? - 19th June 16
How Elliott Waves Tell You When to "Jump In" & When to "Jump Out" of Markets - 18th June 16
Stock Market Inflection Point During Bifurcation - 18th June 16
Gold And Silver – Insanity Is World “Norm.” Keep Stacking! - 18th June 16
Gold Stocks - Bull Markets that Follow Epic Bears - 18th June 16
The Fed Giveth and the Gold Bullion Banks Taketh Away… - 17th June 16
Brexit: "The Vote Heard Around the World" - 17th June 16
Gold Stocks Summer Breakout? - 17th June 16
Stock Investors Get Higher Returns and More Dividend Income - In Less Time With Less Risk - 17th June 16
How to Use the Gold-to-Silver Ratio? - 17th June 16
Inflation, Deflation & Associated Trading Prospects - 17th June 16
Overnight Markets Struggling to Stay Flat - 17th June 16
Gold Price Surges to Highest in Nearly Two Years On Central Bank and Brexit Haven Demand - 17th June 16
Stock Market Thinking Upside Down; Dow 18k Still Key - 17th June 16
Jo Cox MP Terror Attack Killing Claimed for "Britain First" - Witness Report - 17th June 16
Stock Market, Iron Ore, Bitcoin – Is Silver Next for Chinese Momentum Investors? - 16th June 16
EU Referendum Campaigning Suspended Following Shooting of MP Jo Cox, Suspect Named as Tommy Mair - 16th June 16
Why People are Migrating to the UK, Illegal Immigration, Housing Crisis Consequences - 16th June 16
Stocks Fluctuate Following Recent Decline - Bottom Or Just Pause Before Another Leg Down? - 16th June 16
The US Consumer-Driven Economy Has Hit a Brick Wall - 16th June 16
Bitcoin Price Going Parabolic Again, Now At $730 and Up 60%+ In Last Three Weeks - 16th June 16
China's Hard Landing Has Already Begun! - 16th June 16
Crude Oil Price - Oil Bears vs. Support Zone - 16th June 16
Central Bankers Are Wrong About Inflation and Deflation - 15th June 16
Alignment Of The Dow, Interest Rates, Debt and Silver Cycles Will Deliver A Fatal Blow - 15th June 16
Stock Market Bounce May be Over - 15th June 16
EU Referendum: Have the Bookmakers Got it Wrong? LEAVE Opinion Polls Lead - 15th June 16
Gold Price Rally - 15th June 16
How to Invest for Brexit Report - 15th June 16
Stock Market Short of the Decade? - 15th June 16
Stock Market Sell Off Coming! - 14th June 16
QE - The Good, Bad & Ugly - 14th June 16
This Demographic Shift Makes Our Social Security Useless - 14th June 16
Gold Stocks Ultimate Objective in a World of Monetary Transition - 14th June 16
Philosophy of the New World Order - 14th June 16
The Brexit Game - Boris Johnson vs David Cameron EU Referendum Zombies - 14th June 16
EU Referendum: LEAVE Opinion Poll Lead of 51% to 49% Whilst Bookmaker Odds Still Strongly Favour REMAIN - 14th June 16
George Soros Making Big Bets on Gold - 14th June 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Why 95% of Traders Fail

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

Catching a Falling Financial Knife