Below is a commentary originally posted by Institutional Advisors on 18th April 2005:
Gold
- Pattern Requirements for a Significant Low are in Place -
- Buy Signals can Occur as Early as Tuesday -
Technical observations of RossClark@shaw.ca
The pattern from the December top continues to unfold in a similar fashion to seven previous examples we have reviewed over the past thirty-five years. Successfully holding above the February low of $410.50 through the end of April can lead to a very bullish advance.
In the March 27th report it was determined that the initial "A" leg decline from the March 11th high ($445) was pretty much complete. The "B" rally was likely to find resistance in the mid $430's. As it turned out, the price was capped at $430 on April 13th. The "C" leg was expected to complete the downside correction from the $445 high, holding above $417 and producing an RSI(14) reading in the 30's. As stated: "we can extrapolate a narrowed time window for the next important low; April 6th through April 14th". On the 14th, gold broke to a new low producing an RSI(14) reading of 39.9.
While we've established that a buy signal in the long term MACD(34,89,9) would confirm an upside reversal, we would like something more concise on a short term basis. Therefore, the CCI(20) oscillator is being introduced as a better means of determining that the "C" leg decline is complete. If the gold price stays under $424 on Monday the CCI will generate an oversold reading well below -100. The deeper the break in the oscillator, the more convincing the subsequent buy signal will be. Assuming the oversold reading occurs, we can buy as soon as the oscillator moves back up through -90. Risk can be maintained below the immediate lows.
This would set the stage for an assault at the March highs and if true-to-form a measured move into the $510 to $530 range. Such action would be bound to have a significant influence on the mining stocks.
The oscillators can be tracked using the following link:
http://stockcharts.com/def/servlet/SC.web?c=$GOLD,uu[w,a]daoanyay[pb233][vc60][iLa34,89,9!Ld20]&pref=G
Previous examples over the past 35 years.
(1971,' 73,'74,'77, '78, '87 & '02)
