If youve read my articles here for any length of time you've heard me refer to a method of technical analysis that I refer to as "Parabolic Analysis." It involves analyzing price charts through the use of parabolic bowls and domes surrounding the price line. The concept behind Parabolic Analysis is that parabolic curves can be used with success to forecast price movements in actively traded stocks and commodities. I've used Parabolic Analysis for gold and gold stocks extensively over the past four years and with good results.
One of this country's greatest market technicians, P.Q. Wall, was the one who, as far as I can tell, discovered and made frequent use of parabolic curves when analyzing stock and commodity charts. For years I read with anticipation each month his famous "P.Q. Wall Forecast" and learned all I could about how parabolas can be found in almost any price graph, regardless of time frame. The geometric symmetry and aesthetic beauty alone of those bowls and domes was captivating!
It was around the early part of the Year 2000 that I began forming my own theories and applications of Parabolic Analysis, trying to quantify in hard and fast rules the great discovery of P.Q. Wall (which to my knowledge no one at attempted up until then). More importantly, I made alterations to P.Q.'s use of the parabolas and (at the risk of self-flattery) improvements. It was in later 2000 that I published what I consider to be my seminal work, "New Concepts in Support & Resistance," which described in detail the many way that Parabolic Analysis could be used for in stock and commodity trading. I was extremely honored that P.Q. himself endorsed this book. That same year I was invited to make a presentation of Parabolic Analysis at the annual Futures & Options Industry Expo in Chicago. A copy of my presentation was published in the CRB Bridge Trader magazine and was also translated in Japanese in the Quarterly of Technical Analysis in Japan.
Since that time I've tried to refine and improve upon my system of Parabolic Analysis, and I believe I've had good success with it. Most recently I've been gratified to have made several accurate calls on some actively traded gold and silver stocks (including the precious metals themselves). If you're wondering why I've written this long introduction it's only to introduce some fascinating new insights the parabolas are telling us in some of the most widely followed precious metals stocks. I also felt compelled to pen this article after what I consider to be conclusive proof that Parabolic Analysis works. In the past, there have been many traders who have been very skeptical of Parabolic Analysis, not to mention those who have heaped scorn upon the concept. Well now I am happy to report a slow, but growing, acceptance of Parabolic Analysis. I've encountered more people who use this unique technical method of reading charts this year alone than I have in the past several years. I've even been told that one major online charting service includes a feature for drawing parabolas on stock charts. This would have been unthinkable just a few short years ago during the "dark age" of Parabolic Analysis.
Perhaps the single best service the parabolas have rendered to traders and investors in the recent past is in the stock of Durban Roodeport Deep (DROOY). Durban has been heavily ridiculed by investors in recent months and just about everyone seemed to have given up on it, save for a few stalwart traders and investors who had faith in the company. As editor of the daily Durban Deep Report, I myself never lost faith in ol' DROOY to deliver to investors and it was the chart you see below that led me to forecast its recent turnaround to my subscribers.
Can't you just appreciate the stunning symmetry and breathtaking beauty of this symphony of curves? I didn't "make this up" and there is no way I could have imagined all those interlocking bowls and domes in the chart-- they simply jumped out and presented themselves to me or to anyone with a flexible curve and a compass. Note the rather large bowl-shaped curve in the above daily chart of Durban in green ink. This was the kicker, the dominant parabolic bowl that let me and my subscribers know that DROOY was about to commence a major rally. Lo and behold, a few days later and Durban was soaring to the wild blue yonder!
The foregoing analysis was performed on a daily chart. But Parabolic Analysis can also be done on weekly, monthly and even quarterly charts. To take another example, here is the long-term weekly chart of Pan American Silver (PAAS), a stock that I highlighted recently in a commentary here. Note the strong bowl-shaped curve that began forming in 1998 and has continued unbroken until now. The mid-point, or "vertex," of this bowl was near the beginning of 2001 and this is the point in which a Parabolic Analyst would have take his long position in PAAS based on a reading of the weekly chart.
In my November 2000 presentation before the Futures & Options Industry Expo in Chicago I used as a classic example of the tendency of some stocks to cycle in continuous parabolic bowl-shaped curves the long-term graph of gold producer Placer Dome Inc. (PDG). Using Parabolic Analysis I was able to forecast a turnaround and predict the beginning of a long-term upward trend in PDG. An updated chart of this same bowl-shaped curve is visible below. Note that after passing the vertex of the bowl back in 2000-2001, PDG has really only just started to climb the side of the bowl. This pattern confirms that the long-term trend in actively traded gold stocks is now up and perhaps many more years of upside potential to come.
Parabolic Analysis also puts things in greater perspective than classical technical analysis. Even though silver producer Coeur d'Alene (CDE) may look distended from the short-term perspective of the daily chart, it's longer-term monthly chart shows that things are just getting started for CDE. This bowl-shaped curve strongly suggests that considerably higher prices are ahead for CDE in the near future.
Another aspect of Parabolic Analysis that is seldom discussed (although I briefly touched on it in my FIA presentation) is what I like to call "Cycloid Analysis." A cycloid is not a true parabola but is rather a bowl-shaped or dome-shaped curve, really a semi-circle. Through my years of chart study I've found that cycloids do exist, particularly in long-term monthly or quarterly charts. I've provided here an example of a cycloid manifesting in a quarterly chart, in this case the long-term graph of Bema Gold Corp. (BGO). This bowl-shaped curve shows great promise for BGO in the months and years ahead.
My purpose in the foregoing essay was to highlight some of the recent successes of Parabolic Analysis as well as promote the accuracy and usefulness of this fascinating and emerging science of technical analysis. Homage must be paid to the "grandfather" of Parabolic Analysis, P.Q. Wall. I also hope I've been able to contribute to a better understanding of this new science in my own way. My wish is that others reading this article will feel inspired to take up their own studies and experiments in Parabolic Analysis. By all means, feel free to inform me of your successes and discoveries along the way.