David Tablish | Nov 25, 2013 02:12AM ET
In this Report I’m going to show you the Chartology of gold, from my perspective, for the last 17 years or so. As you know I don’t pay lip service to the cycle guys, Elliot Wavers or the many different disciplines that folks use to analyze the markets. My goal is to give you an unbiased look at the markets strictly from a Chartology perspective that is unique for our site.
In this look at gold I’m going to use several different concepts that I’ve shown you in the past to try to give you a feel of where we may be headed. We’re going to look at neckline symmetry rails, neckline extension rails, reverse symmetry and just your everyday support and resistance points on a chart. I hope to paint a fairly accurate picture of where the gold market may find an important low based on the charting concepts listed above.
1. NECKLINE EXTENTIONS
Before we look at gold I want to show you some of these charting concepts so you will have a better understanding of what I’m showing when we get to gold. The first thing I would like to show you is a neckline extension rail. Many times when a neckline is broken, you will get an immediate backtest and then the move will take place. There is a saying I use that goes like this: a neckline never dies, it just slowly fades away. By that I mean you can extend the neckline way out in time and it can still be active even though the original move has completed and the price objective met.
Agnico Eagle Mines Limited, (AEM) was one of the first big cap precious metals stocks to form its high and breakdown while the rest were still building out their topping patterns. There are three H&S tops on this weekly chart below but we’re just interested in the middle one that formed back in 2010 – 2011. After reaching its price objective down at 33 or so it then had a counter trend rally that took the price action all the way up to the old neckline that I’ve labeled, Neckline Extension Rail. As you can see, AEM tried for several months to break out above that neckline extension rail but failed.
That failure created the head portion of another H&S top which reached its price objective down at the 25.62 area where its currently trying to form a blue falling wedge.
I don’t want to say 1980 deja vu all over again but the point is, one never knows when the long term move has been completed. Maybe AEM will end up going much higher than 85 in the very long run but if one has been holding this stock for the last several years it's been a painful ride no matter how you want to spin it.
Let's look at some neckline symmetry rails that are just a parallel line taken off the neckline and moved to the left shoulder high or low when you think there is a possibility of a H&S forming. It’s not a perfect science but it does give you a place to look for a high or low for a right shoulder. It is amazing though how many times this works out. The massive H&S top on the Market Vectors Gold Miners ETF, (GDX), shows a beautiful neckline symmetry rail that nailed the top for the right shoulder. When I see something like that it increases my confidence level that I’m on the right track.
Now let's look at probably the prettiest reverse symmetry chart I could find. Most of the precious metals stocks are reversing symmetry down vs how they went up during the rally off the 2008 low. If I had a hall of fame for some of these charts, this chart for Allied Nevada Gold Corp, (ANV), would go in under the reverse symmetry category.
Again, like AEM this was a $47 dollar stock not that long ago. As fear is a more powerful emotion than greed you can see how this stock has come down a bit faster than it went up. What makes this chart so beautiful is the blue reverse symmetry triangles that are forming in the exact same location on each side of the rally and decline phases. As you can see, the blue triangle broke out last week and now is headed down to the 2008 crash lows.
When looking at this blank chart just notice that during the bull market years, gold made higher highs and higher lows all the way up except for the 2008 crash low that just slowed down the bull market for a bit. Note the price action since the high was put in during 2011. There is a series of lower highs and lower lows which by definition is a downtrend.
Just divide the H&S into, from the head straight up to the neckline where you will see two black arrows. The colored neckline symmetry rails are all the exact same angle. Follow the colored arrows down on the left side and then do the same thing on the right side chart. You will see each side of the H&S consolidation pattern, the lows and highs correspond to each other. Another very important feature on this chart is the big fat neckline. Note the first breakout and backtest that was spot on. Gold then had a good rally that stalled out and the reaction found support again on the big fat neckline at 1040. That is the point that led to gold’s final major rally phase up to 1920, its bull market high. One last point on this chart. Follow the top brown symmetry rail all the way from the left side of the chart to the right side of the chart. Note how the smaller H&S bottom that formed on the big fat neckline, as a big backtest. The left and right shoulders formed on the brown NL symmetry rail. Watching this unfold in real time was quite exciting as I always had a place to look for support which always showed up exactly when it needed to. Anyway, from my perspective I find the symmetry to be quite amazing which is why I’m so attracted to the Chartology of the markets.
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