Gold is within a week or two of declaring its next $260 move

 

The lines in the sand have been drawn. The fireworks will soon be lit. The only unknown now is the direction the next significant move. The market will announce the direction with the next breakout. 

The Gold charts can give traders a ton of fake out signals on a short-term basis. But on a longer-term basis it can be said that the Gold charts are among the most reliable of all markets. Gold is very dependable in advertising big moves in advance.

The Gold market is the perfect example of a concept of classical charting I call “morphing.” Morphing occurs when many short-term patterns (most of which fail) combine to form a massive pattern. These short-term patterns have a way of wearing out traders financially and emotionally. Eventually a chart pattern of huge proportion forms and matures. This larger pattern then leads to the next significant move in Gold. It has always been this way in Gold.

Perhaps someday I will have time to catalog all the major patterns that resulted in price thrusts in Gold. To summarize, I have counted 14 major weekly chart configurations since the 2003 blast off. Eighty percent of these patterns worked. The ones that did not work resulted in additional morphing. Of the ones that worked, from the point of pattern completion or breakout the market traded against a breakout position an average of only $6 per ounce intraday before turning into a big profit, with a worst-case intraday loss of $15 per ounce. This is how reliable major chart patterns are in Gold.

Gold is now set to generate the next major signal, and very soon. The  direction is yet to be determined.

Here is what we have, and I will present it as a bull or bear scenario.

Bearish

The dominant trendline in Gold dating back to the 2008 low is just below the market. The following weekly chart displays this trendline under the orthodox intraday lows as well as the weekly closing prices. A Friday close below $1613 would violate the closing price trendline. A move below $1600 would violate the orthodox trendline.

Trendline violations, in and of themselves, only mean that there is a change in market behavior. Trendline violations must be accompanied by other technical developments. In the case of Gold the other factor is the possibility of an 8-month descending triangle. Descending triangles are almost always resolved by a downward move. A trendline violation would likely lead to a test of the lower boundary of the descending triangle at around $1525. The lower boundary is where the next line in the sand comes into play. A decisive violation of the lower boundary would not be good news for Gold bulls.

 

Bullish

A characteristic of all major patterns in Gold over the years is that they could be read both ways. The same is true with the present Gold market. The closing price is the most important single price of the day since all the day traders are neutralized. The daily closing price chart below shows that Gold could be forming a massive continuation inverted H&S pattern. Mature patterns tend to have symmetry — and this is the case with this H&S patterns. The right and left shoulder lows are within a week of being equal distance from the low of the head. It is possible to interpret the right shoulder itself as a possible smaller H&S bottom, although I dislike downslanted necklines. [Note: I realize that Elliott Wave traders do not believe continuation H&S bottoms exist. But, the founders of classical charting principles — Schabacker, Magee and Edwards — all acknowledged the pattern. So, you stick to Elliott Wave and I will stick to classical charting.]

There are several factors in support of this interpretation. First, most periods of congestion are resolved in the direction of the move preceding the congestion. In other words, the odds always favor a continuation pattern. Second, open interest is the lowest it has been since Sept. 2, 2009 when Gold was below $1000. This was precisely the point– to the exact day — when Gold last completed a chart pattern (17-month continuation H&S) of the magnitude of the current consolidation pattern. The Sept. 2, 2009 low has not been seen since.

A close above $1700 would tip the scales toward an upside breakout. The upside breakout would be confirmed by a close over $1800 and would have a target of $2080.

Is there a chance that the Gold chart could continue morphing? Of course, but for the first time in nine months the Gold chart is capable of launching a really big move. And based on the mature nature and symmetry of the present chart, the start of the next move should be very soon.

Markets: $GC_F $GLD

How do you steal $1.6 billion and stay out of jail? Corzine bundles money for Obama!

Are the two activities connected? You be the judge.

In a recently released report on campaign contributions by the Obama adminstration (see above), Jon Corzine has been bundling again — this time to the tune of $500,000. This follows similar bundling efforts reported by the Obama camp in January.

Funny how Corzine can find money for Obama, but can’t seem to remember how $1.6 billion disappeared at MF Global.

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The top in AAPL Jesse Livermore called (from his grave) on March 27

 

Blow off top after accumulation cylinder was one of Livermore’s favorite set ups for a short

Hey, I am making this post knowing that there has been no one colder in calling $AAPL than me.

I originally posted this Livermore set up on March 27 — see here.

But, if you go by Livermore’s design, $AAPL is in driving to point #11, from a pint #12 rally will offer a shorting opportunity.

 

Don’t shoot the messenger.

$AAPL

 

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Compare your risk-adjusted trading performance to the world’s best

 

Trading skill is not determined by absolute return, but by the relationship of return to asset volalitility. Risk-adjusted performance is the park where the big dogs roam.

Absolute rates of return can be a function of luck and leverage. Excellent risk-adjusted rates of return measure trading skill.

There are several measures of risk-adjusted performance. The most widely used is the Sharp ratio. The Sharp ratio is a worthless metric because it penalizes upside volatility. That Sharp is the metric of choice for allocating billions of dollars of assets is a testimony to the idiocy of Wall Street asset allocators. Other than short gamma traders and other options strategists, most traders think Sharp is a joke.

The two ratios that — in my opinion and the opinion of many other professional traders — best measure actual trading skill are the Calmar Ratio (and its derivatives) and the Stableford Anxiety Index (also referred to as the gain vs. pain ratio).

Calmar is determined by dividing average annual rate of return by the worst peak-to-valley drawdown. Its best measure is over a long period of time, but you can use the life of your trading for this exercise. Be honest, go back to your trading inception date.

The SAI is determined by dividing the cume total of all monthly rates of return by the absolute value of all negative monthly returns.

Please report your performance metrics in this survey. I will comment on the results in some future blog post.

 

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[poll id=”14″]

 

[poll id=”15″]

 

 

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Gold chart — right in an area where it should hold fast

 

There is a tendency toward symmetry and balance in the best chart patterns

In the case of H&S patterns, symmetrical balance would be found in the duration and height of the shoulders.

The current right shoulder low is approximately 13 weeks from the low of the head. The left shoulder low was 13 weeks from the low of the head. With the exception of the Sept. 26 “wash-out” low the right and left shoulder have approximately the same height.

 

We are at the price level and time frame that could become a right shoulder low. This same balance can be seen in Gold priced in Swiss Francs, as seen below. It must be added that a close below the Oct. 2011 low would not be a good thing technically.

 

Now, a word on Silver. Back in late April/early May I was lucky enough to call the top of Silver within a day and $1. My all was based on the fact that the trading volume of $SI_F and $SLV in one week was equal to eight years of supply. Big slugs of volume means that supply or demand is exerting domination. That the late April 2011 volume represented dominant supply was a no-brainer. I called the top a BUBBLE as it was happening — a call that earned me wrath by many of the irrational Silver bulls who still think the Gold/Silver ration should be at 15 to 1 because it was so declared by a Spanish king in the 16th century.

Supply continues to exert itself in Silver. The weekly chart above shows that slugs of volume enters the market whenever prices reach the upper boundary of the bear channel. This dominant supply will need to be overcome if Silver before Silver takes a run at the 2011 high. Silver was a BUBBLE. It takes a market — any market — time to work through a bubble, just as the U.S. real estate market needs to work through its bubble. In fact, it may be years before real estate prices reach 2005 levels again. It may be years before Silver reaches 2011 levels again.

Let me close with a few words for the sopranos in the the boys choir. I know it drives some of you crazy that I point out bullish features of a market one day and bearish features the next. Get a life! Charts are living, evolving entities. Charts are like mosaics. Add a piece here and piece there and the mosaic can change. If you want a chartist who never changes his or her mind based on the evolving characteristics of a chart, then find some idiot who bought Silver and $48 and is still singing from the bull song book.

You see, many “pedestrian” traders want to know what others think about a given market at a given time. Who cares? I trade price and signal/risk criteria, not Silver, not Gold, not Corn, not the Yen, but price.

Thankfully, it is not your disagreement with a price outlook or method of market analysis that qualifies one for the choir, but rather emails sent with a high shrill voice and lack of civility. If you do not understand the entire choir boy idea, don’t worry, you are not a member. Those of you who belong know who you are. So, here is my final word to the soprano choir boys among you. Click here.

 

Markets: $$GLD, $GC_F, $SLV, $SI_F

 

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Chart study — Copper

 

Doubtful symmetrical triangle is now leaning toward being a bull trap

The symmetrical triangle in Copper has been commented upon by most chart readers in recent weeks. I have commented upon it as well — questioning its validity because of the number of contact points.

My experience is that the power and legitimacy of a continuation symmetrical triangle becomes increasingly questionable the longer the triangle delays and the more contact points it creates.

The ideal triangle has only four contact points prior to the continuation of the trend. The triangle in Copper had eight contact points. This is an indication that the triangle had lost all the power a triangle should have.

The breakout today quickly reversed when the precious metals turned lower, creating a possible one-day reversal pattern. While this triangle may still work itself out, I have great doubt that a strong upthrust will occur.

In fact, it may be that the breakout today proves to be a bull trap of significant degree. This will be verified if the triangle does an “end around.” Failure patterns often have more power than completed patterns.

Markets: $HG_F

 

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The break in Gold today advertised itself 30 minutes in advance

 

Early afternoon non-confirmation between Gold and Silver spelled doom for Gold

I am not really into day trading, but I happened to be watching and became  fascinated by this development in the precious metals today.

I even commented to my partner that Gold was getting set for a hit.

At the 11:30 AM time slot (that’s 1:30 EDT) Silver rallied to just above Monday’s high. At the same time Gold was struggling and not only did not come close to Monday’s high, but could not even exceed Tuesday morning’s high.

Thirty five minutes later Gold went over the cliff — dropping $30 in a matter of 40 minutes. Gold advertised its decline in advance.

Markets: $GC_F, $SI_F, $GLD, $SLV

 

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