OK, I have been meaning to post this weeks ago when Gold was stopped out in the high 1780's where i was long with a 4.25 $ stop. It made me go right back to the charts and review this market as obviously something was wrong in my appraisal. Perhaps i had become psychologically susceptible to the hype that surrounds Gold and in particular since the equity markets started to tumble in late summer .Certain pundits were talking about it not being unreasonable for Gold to reach $10,000.
I had also been aware of a growing correlation between Gold and Equities and was aware that many markets were starting to trend together with equity indices such as Copper,grains and others. Meanwhile those same pundits (we have all seen them on CNBC/Blomberg etc-who are paid far too much) were touting Gold as the perfect diversification/hedge instrument! This market correlation of markets has always been a sign
of more than volatility...it has in the past been a reliable warning sign of underlying profound fundamental weakness (as well as technical weakness).
In this i am convinced that we will see some terrific moves in the months ahead and a massive shake up. Anyway...back to Gold.
I the first chart below i present to you the most important recent pivot since the e/o summer. Pivot A was indeed the first significant lower low we have seen for years ( since November 2009). What confused many was the next marginal higher high at C ($ 1920). However i always use Schiff forks off a rising market and this one was 'in play' within weeks when we saw pivot D formed soon after.
I should point out that pure exponents of Andrews would gasp with disgust that i have used pivot B as it is a lower high than C, but I have had the luxury of indulging myself for over 7 years in this theory and am sure that all any fork does is express 3 single pivots- no more and no less. There is no wrong way to connect 3 pivots with a fork, infact there is a totally new bizarre way of connecting a range of pivots to produce the most shallow angled reaction lines that are the most effective of all reaction lines. This is for another post at another time altogether.
I have proved to myself beyond reasonable doubt that there is no wrong fork in this chart.....ABD or ACD. Both are important. ( for me) The most important fact is that of the periodicity of a fork. Infact any one single fork rarely has more than one or two touches on it's upper and lower MLP's or indeed its centre line which makes me wonder how anyone can trade using a single simplistic fork. Only forks of great distinction have the ability to continually influence price and they are usually what i consider to be 'controlling forks' ....drawn off a distant controlling swing ( important market highs and lows) that continues to influence price long after these pivots are made.
Going back to the Gold ....we(I) have drawn below two simple forks ABD and ACD. What i have come to realise ( and i only realised this by accident) was that price must take out both centre lines- or fail. It matters not 'one jot' that the mauve CL of ACD is reached if the CL of ABD is not reached. It still counts as a failure. back test this on any chart with any instrument even with a irregular fork like this. Here you can see the failure to reach the dark blue CL of ABD...This is the fork where P1 is behind P0....This is not a bona fide fork regarding Andrews but it works as well as any fork (as does its reaction lines) and logically i cannot see why it should not work .All it does is express the relationship between three pivots...It does not express a whole swing even.To express a whole swing you must use multiple forks.
On the template at the bottom which has multiple forks (and their reaction/warning lines) from multiple time frames (where each pivot and thus each fork is chosen using a mathematical formula to give a value to each pivot and a similar numerical value or 'score' to each fork- this is essential when trading using multiple pitchforks/reaction lines
or you just end up loosing control of the chart where you have no idea which reaction or median line possesses what/which value and what your expectations are for trend reversal/continuation etc).
I noticed on the chart that a particular reaction line from some years ago had a great correlation with price behaviour and the fork is shown below in both daily and 240 min. I guess this could be loosely called a controlling swing but strictly it doesn't tick all the boxes for me. Anyway who gives a fig if the reaction line works? In the bottom charts the reaction line is in a slightly different position but the point is that i should have seen it sooner ( before i went long perhaps?).
What can i deduce about the technical position of Gold now? We have closed the week on the original centre line which has provided support-so far but I have drawn many smaller lower time frame forks that are all failures. I do not think it is unreasonable to see Gold back to test support at 1650, then 1600 and ultimately 1500 where the UMLP of this long fork is lurking. You could also look at this from another point of view. When price passes through this reaction line it will indicate a change of health /trend back upwards towards the heavens where we are told
( normally by someone from the IGC) gold is heading. For the moment with the current correlation with the stock indices i would not want to be long gold unless the big figure was above 1800$/Oz. I suspect that there is at least another 10% or 150 bucks on the downside perhaps more.
At the end of the day...spare a thought for
Gordon Brown...Britains ex-prime minister ( and perhaps one of the dullest men to hold high office in my lifetime) who sold 400 tonnes of the old Empires Gold in 1999 at an average price of 280$/oz when he was Chancellor of the exchequer. It puts my 1500$ loss a few weeks back in perspective....in fact i am smiling as i write these last words!
Lastly Monday 28 Nov ( below) we have seen a bounce off the centre line shown above and we are currently trading at 1714.... however i am not convinced. Today stock markets and the euro have all opened higher but i am looking to short a failed rally in both equities and the Euro perhaps on wednesday or thursday this week. Gold i suspect will make it to 1750-1760 and when it gets there i will be waiting & watching to take its pulse and pescribe a possible short.
