-- Posted Wednesday, 20 October 2004 | Digg This Article
Rick’s Picks
Wednesday, October 20, 2004
For investors who’d rather be smart than lucky
Comex gold’s rally has been losing momentum for the last six weeks and looks vulnerable. Since bottoming at $375 in May, the continuous contract has gone as high as $425, or roughly 13 percent. To be sure, this is a pretty respectable showing. But what is most striking about the daily chart is that a five-month accretion of mincing steps has yet to bring the futures to the not-so-formidable peak near $432 that was recorded last April. On the surface, this is bullish action if for no other reason than that the dominant trend has been up for so long. However, it is not the kind of bull that is about to kick a hole in the sky.
To explain why, I have reproduced three charts below. The first is a Comex weekly chart that shows the provenance of bullion’s so-far recovery high, 433.10. In this instance, the point ‘A’ I used to calculate a target is admittedly subtle, but it is nonetheless the lowest single-bar low discernible before gold took off in early 2002. Assuming, as always, that an AB “impulse leg” will eventually generate a CD leg equal in points, we can compute a target of 433.80. The actual high was 433.10 – close enough – but in the nine months since, it has yet to be surpassed. (April’s peak, at 432.20, fell less than $1 shy.) Manifestly, January’s high was an important one. But will it give way to the current, very extended rally cycle?
Bull Lacks Power
The daily chart below does not encourage us to think so. Notice that there are relatively few thrusts creating the bullish “impulse legs” that we require to renew the larger uptrend. To be valid, an impulse leg must surpass two prior peaks without experiencing a pullback of more than a single bar along the way. In this case, the two-peaks rule has been half-satisfied by “easy” internal peaks that lie along the path of the uptrend itself, rather than by the more challenging “external” peaks created by last April’s steep decline. It’s a rally, granted, but if it were destined to explode, last May’s recovery would have blown through prior peaks 1, 2 and 3 without even breathing hard. As it happened, it took more than two months to achieve this modest feat.
Considering the mildly dispiriting picture revealed by the weekly and daily charts, can a lowly 15-minute bar chart tell us anything of value? In fact, it can. The reason is that, according to my hidden-pivot system, if a major trend is going to continue, it will be signaled by minor trends that exceed their ‘D’ targets. In the chart below, the closest such target is 427.60, derived from the A, B & C swing points I’ve indicated. What this implies is that if the so-far insignificant rally begun from Monday’s lows climbs above 427.60 even slightly – say, by 0.40 points or more – it would strongly imply that there will be yet another minor rally cycle. String enough of these minor “extension” rallies together, and eventually they will create bullish impulse legs on the weekly and monthly charts.
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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2004, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Wednesday, 20 October 2004 | Digg This Article
