This is an update to the long term gold chart we posted in February.
The large drop of the recent weeks is giving us more clarity going forward.
Here is my first chart (click for larger image):
This is a monthly chart. Even with the recent drop, this market is still in a clear long term uptrend. So, it is way too early to declare that this bull market is over. But this is of course at least a very big correction.
I have drawn in an ellipse which has nicely contained the moves since gold broke above its 2008 highs.
This pattern should be resolved by September.
Notice how neither the Earl nor the Earl2 are showing any bottom yet.
Looking more into detail and projecting possible ways forward, we have this chart (click for larger image):
When you have this kind of fast move, then there are three typical scenarios:
1) the biggest rate of change comes at the very end of the move (that’s what we had in the 2008 correction)
2) the biggest rate of change comes in the very middle of the move
3) in a more rare variant, you get the highest rate of change at the 1/3 or 2/3 point of the entire move.
We can see that the support level near $1440 did not hold the market and we have now fallen to just above $1300, where stronger support is likely.
Going forward I look for gold to hover between $1300 and $1440 (support has become resistance) for a couple of months. And then it will probably move depending on one of the above scenarios.
In scenario 1 we would look for a breakout above $1440, which would resolve the ellipse pattern and be a signal to buy.
In scenario 2 we would get another drop towards $1080, probably in August or September, and then the start of a new move upwards. So, if we get this drop to $1080, then I would also buy and use a stop-loss just below $1000.
Notice that on a drop from $1800 (last year’s high) to $1080, we would expect the greatest rate of change in the middle, which happens to be exactly $1440.
Even on the daily chart, gold has dropped from $1560 to $1330 within two days, which also puts the biggest rate of change point at $1445. This points to an ultimate low just below $1100.
In the more rare scenario 3 we would look for a bottom around $1260 or all the way down to $720 (which puts $1440 at the 2/3 and 1/3 points respectively).
Great to see you using ellipses for your analysis. I haven’t seen these used much in technical analysis. Have been using them here in Mumbai on the NSE NIFTY for the past almost 15 years and they work wonderfully for long term trends. ( I use them with normal and log charts and it works on both).
BTW just discovered your site yesterday!! Recently finished Dewey book CYCLES. Highly recommend the other book also by Stephen Puetz. Initially I was a little sceptical about lunar phases effecting the market. But getting more and more convinced that some extra terrestrial phenomenon does have some effect on the markets and human behaviour.
Thanks for your comments.
I think ellipses are underused in market analysis, but maybe that’s logical, a straight line is so much easier to spot on a chart.
Trendlines are rather useless when it comes to capturing accelerating up or down moves, and that’s when ellipses come in.
The ellipses become significant when there are many touches over an extended period.
The lunar cycles have worked well historically for a lot of markets (see our performance page). I don’t know how well they work for Indian markets. I have observed that markets in tropical countries seem to have different seasonal patterns, so maybe lunar cycles are also working different there. You would have to test it over a long period.
Can i post the above on Traders Lab….. 80,000 members?
And is it possible to see if an eclipse fits Silver?
You are welcome to forward my post (or any of the charts) as long as you include a link to this page.
I haven’t studied silver vs eclipses. That will be for another time.
In May I won’t have much time for research (family visiting), so I am trying to complete the article on sunspots vs commodities (CRB) I have been working on.