Best of the Week
Most Popular
1. Best Cash ISA Savings Account for Soaring UK Inflation - February 2018 - Nadeem_Walayat
2.Gold Price Forecast 2018 - February Update - Nadeem_Walayat
3.Bitcoin Crypto Currencies Crash 2018, Are We Near the Bottom? - Nadeem_Walayat
4.Trump Bubble Bursts, Stock Market Panic Dow 1175 Point Crash Analysis - Nadeem_Walayat
5.Gold Corrects, Bitcoin Markets Crash, Whilst Stocks Plunge - Nadeem_Walayat
6.US Treasury Bonds: Fuse to Light the Bonfire - Jim_Willie_CB
7.Dow Falls 666 Points As Cryptocurrencies Crash And Krugman Emerges From His Van - Jeff_Berwick
8.Stock Market Roller Coaster Crash Ride Down to Dow Forecast 23,000 - Nadeem_Walayat
9.Trading the Shadows - Oil, Dollar, Stocks, Gold Trend Analysis - B.R. Hollister
10.Stock Market Analysis: Baying for Blood - Abalgorithm
Last 7 days
Tips to Get Financing for a New Business - 24th Feb 18
Heavy Police Presence at Resumption of Sheffield Street Tree Fellings Protests - 24th Feb 18
Why You Should NOT Sub4Sub Free Youtube Subscribers - YTpals, Subpals, SubmeNow Test Results - 23rd Feb 18
One Belt, One Road, One Direction for Precious Metals - 23rd Feb 18
Gold’s Curious Sentiment - 23rd Feb 18
Relationship Between Crude Oil and U.S. Dollar in February 2018 - 23rd Feb 18
Why The Next Oil Boom Will Be Fueled By Blockchain - 23rd Feb 18
Gold Bull and Bear Markets - 23rd Feb 18
Why Recent Lows Are Crucial for US Dollar - 23rd Feb 18
Will Bitcoin be Larger Than NEO in 2018? - 23rd Feb 18
Stock Market SPX Probable Pop-n-drop - 22nd Feb 18
Stocks Fail to Hold Gains, But Still No Correction - 22nd Feb 18
Why We Should Buy Essay - 22nd Feb 18
The Latest US Debt Blow - 22nd Feb 18
6 Tips For Seamless Business Foreign Exchange - 22nd Feb 18
How to Anticipate Stock Market Trend Changes - 21st Feb 18
Gold Miners’ Rally? What Rally? Watch Out for More Fake Moves! - 21st Feb 18
5 Big Drivers of Higher Inflation Rates Ahead - 21st Feb 18
Goofy Indictments Divert Attention from Criminal Abuses at the FBI and DOJ - 21st Feb 18
Bitcoin or British Pound ‘Pretty Much Failed’ As Currency? - 21st Feb 18
Stock Market Waiting for the Fed - 21st Feb 18
National Identity Demands Restrictive Immigration - 21st Feb 18
Best Opportunities for Freelance Technical Writing Jobs - 21st Feb 18
4% US 10-year Treasury Note Yield Will Be a Floor Not a Ceiling - 20th Feb 18
Governments Are LYING about Their Gold Activities while Mining Companies Cower - 20th Feb 18
No Silver Lining Here - 20th Feb 18
Semi Conductor Stocks SEMI Bearish? - 20th Feb 18
The Prisoner Promised Land - 20th Feb 18
Best Car Dash Cam Review: Z-Edge S3 Dual Dash Cam - UNBOXING (1) - 20th Feb 18
How Inflation Reduces The Real Value Of Social Security Net Of Medicare Premiums - 19th Feb 18
Could Stellar Lumens be a Challenger to Bitcoin for International Payments? - 19th Feb 18
US-China Trade War Escalates As Further Measures Are Taken - 19th Feb 18
How To Trade Gold Stocks with Momentum - 19th Feb 18
Is a New Gold Bull Market on the Horizon? - 19th Feb 18
Stock Market Decision Point! - 19th Feb 18
An Inflation Indicator to Watch, Part 1 - 18th Feb 18
Get on Top Of Debt Before It Gets on Top of You - 18th Feb 18
Will the Stock Market Make a Double Bottom? - 18th Feb 18
5 Reasons Why Commodities Are the Investment Place to be in 2018 - 18th Feb 18
1 Week Later, Stock, Bond Market Risk Remains ‘On’ as 2 of 3 Amigos Ride On - 17th Feb 18
Crude Oil Prices: A Case of Dueling Narratives? - 17th Feb 18
Free 1000 Youtube Subscribers Services - YTpals, Subpals, SubmeNow Test - 17th Feb 18
How to Trade as We Near March Stock Market Top - 16th Feb 18
Bitcoin as Poison - 16th Feb 18
GDX Gold ETF Weathers Stock Market Selloff - 16th Feb 18
Casino Statistics and Demographics - 16th Feb 18
IS Today Thee Stock Market Turn Day? - 16th Feb 18
Huge SMIGGLE Shopping HAUL, Pencil Cases, Drinks Bottles, Back Packs, Toys.... - 16th Feb 18
Tesla Cash Keeps Burning at $320 a Share - 15th Feb 18
Big Conflict Ahead in the Financial Markets - 15th Feb 18
Stocks Extend Rally Off Friday's Low, But Short-Term Exhaustion Near - 15th Feb 18
Stock Market Out on a Limb... - 15th Feb 18
Things Only a True Friend Would Say About Gold - 14th Feb 18
Global Debt Crisis II Cometh - 14th Feb 18
Understanding Crude Oil Behavior - 14th Feb 18
Stock Market is Getting Scary... - 14th Feb 18

Market Oracle FREE Newsletter

Urgent Stock Market Message

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.


© 2005-2018 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

6 Critical Money Making Rules