Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Is Crude Oil Firmly on the Upswing Now? - 20th Feb 20
What Can Stop the Stocks Bull – Or At Least, Make It Pause? - 20th Feb 20
Trump and Economic News That Drive Gold, Not Just Coronavirus - 20th Feb 20
Coronavirus COVID19 UK Infection Prevention, Boosting Immune Systems, Birmingham, Sheffield - 20th Feb 20
Silver’s Valuable Insights Into the Upcoming PMs Rally - 20th Feb 20
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20
China Under Reporting Coronavirus COVID-19 Infections, Africa and South America Hidden Outbreaks - 12th Feb 20
Will USD X Decline About to Trigger Precious Metals Rally - 12th Feb 20
Copper Market is a Coiled Spring - 12th Feb 20
Dow Theory Stock Market Warning from the Utilities Index - 12th Feb 20
How to Get Virgin Media Engineers to FIX Hub 3.0 Problems and NOT BS Customers - 12th Feb 20
China Under Reporting Coronavirus COVID-19 Infections by 66% Due to Capacity Constraints - 12th Feb 20
Is Coronavirus the Black Swan That Takes Gold To-Da-Moon? - 12th Feb 20
Stock Market 2020 – A Close Look At What To Expect - 12th Feb 20
IBM AI Mega-trend Tech Stocks Investing 2020 - 11th Feb 20
The US Dollar’s Subtle Message for Gold - 11th Feb 20
What All To Do Before Opening A Bank Account For Your Business - 11th Feb 20
How and When to Enter Day Trades & Swing Trade For Maximum Gains - 11th Feb 20
The Great Stock Market Dichotomy - 11th Feb 20
Stock Market Sector Rotation Should Peak Within 60+ Days – Part II - 11th Feb 20
CoronaVirus Pandemic Stocks Bear Market Risk 2020? - Video - 11th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

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.


© 2005-2019 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