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Gold in a P&F Chart



By: David Chapman


-- Posted Thursday, 5 July 2012 | | Disqus

TECHNICAL SCOOP

CHART OF THE WEEK

26 Wellington Street East, Suite 900, Toronto, Ontario, M5E 1S2

Phone (416) 604-0533 or (toll free) 1-866-269-7773 , fax (416) 604-0557

david@davidchapman.com

dchapman@mgisecurities.com

www.davidchapman.com

Chart created using Omega TradeStation 2000i.  Chart data supplied by Dial Data.

                                                                                                                                                               

Point and figure charts give an interesting and different view than one normally sees with a bar chart. Point and figure charts are rarely used by technical analysts today. But point and figure charts were at one time used extensively because they were simple to maintain.

 

Unlike a bar chart or any other chart form the main characteristic of a point and figure chart is that it views all trading as a single continuous stream. It ignores time. The only thing that matters is price. The only thing the trader needs to determine is what box and reversal magnitude to use. The box size is the X or up price while the O is the reversal size. Putting X’s and O’s on a chart was a lot easier in the days prior to computers to allow traders to track their choice of stock, commodity or index.

 

The above gold chart it is using a 15x3 box/reversal size or 45 points. What that means is that unless the price decline is at least $45 one does not need to record a down move or in this case put in an O. The same occurs on the upside. Since the chart does not reflect time the above chart was actually started back in 1980 and is up to today. Thirty two years compressed into one simple chart. But it does tell a story.

 

Visible on the chart is the major double bottom made in 1999 and 2001 at around $255 for gold. Since then gold has made three waves up (2 waves up and 1 down) and is in the process of making a fourth wave. The first correction (wave 2) was seen with the top in March 2008. The market bottomed in October 2008. On the point and figure chart gold formed what appeared to be a flag formation. A flag formation is a corrective pattern seen in bull and bear markets. In a bull market the flag would be pointed down as it was above. The breakout point was at $950 and had minimum objectives to $1,265. There was a 3.618 Fibonacci objective that could see the market reach to about $1,925. As it turns out that was about where the market topped.

 

The flag formation broke to the upside in February 2009 and topped out in September 2011. Since then the formation appears to be a pennant formation again another common corrective pattern seen in bull and bear markets. As with the bull flag formation, the bull pennant formation points downward as it should.

 

What is needed now is a breakout to the upside. The breakout point is seen at around $1,750 and would appear to have minimum objectives up to at least $2,125. The pattern does not appear to be a topping pattern.

 

Point and figure charts can be quite useful to look at a stock, commodity, index etc. in a very different manner than one would view it normally. The above chart of gold suggests that 3 waves have been completed to the upside since the double bottom of 1999/2001 lows and the market is currently tracing out the 4th wave. In Elliot wave analysis a 5th wave should soon be getting underway. The 5th wave to the upside is often the longest and most spectacular one of them all. It should at least equal the first wave up which was $750. That could suggest a potential objective of $2,500 before the next major correction sets in. If the 5 waves up pattern is correct then that correction could be a significant one and correct the move up from $255.

 

copyright 2012 All Rights Reserved David Chapman

General Disclosures

The information and opinions contained in this report were prepared by MGI Securities. MGI Securities is owned by Jovian Capital Corporation (‘Jovian’) and its employees. Jovian is a TSX Exchange listed company and as such, MGI Securities is an affiliate of Jovian. The opinions, estimates and projections contained in this report are those of MGI Securities as of the date of this report and are subject to change without notice. MGI Securities endeavours to ensure that the contents have been compiled or derived from sources that we believe to be reliable and contain information and opinions that are accurate and complete. However, MGI Securities makes no representations or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of, or reliance on, this report or its contents. Information may be available to MGI Securities that is not reflected in this report. This report is not to be construed as an offer or solicitation to buy or sell any security. The reader should not rely solely on this report in evaluating whether or not to buy or sell securities of the subject company.

 

Definitions

“Technical Strategist” means any partner, director, officer, employee or agent of MGI Securities who is held out to the public as a strategist or whose responsibilities to MGI Securities include the preparation of any written technical market report for distribution to clients or prospective clients of MGI Securities which does not include a recommendation with respect to a security.

 

“Technical Market Report” means any written or electronic communication that MGI Securities has distributed or will distribute to its clients or the general public, which contains an strategist’s comments concerning current market technical indicators.

 

Conflicts of Interest

The technical strategist and or associates who prepared this report are compensated based upon (among other factors) the overall profitability of MGI Securities, which may include the profitability of investment banking and related services. In the normal course of its business, MGI Securities may provide financial advisory services for issuers. MGI Securities will include any further issuer related disclosures as needed.

 

Technical Strategists Certification

Each MGI Securities technical strategist whose name appears on the front page of this technical market report hereby certifies that (i) the opinions expressed in the technical market report accurately reflect the technical strategist’s personal views about the marketplace and are the subject of this report and all strategies mentioned in this report that are covered by such technical strategist and (ii) no part of the technical strategist’s compensation was, is, or will be directly or indirectly, related to the specific views expressed by such technical strategies in this report.

 

Technical Strategists Trading

MGI Securities permits technical strategists to own and trade in the securities and or the derivatives of the sectors discussed herein.

 

Dissemination of Reports

MGI Securities uses its best efforts to disseminate its technical market reports to all clients who are entitled to receive the firm’s technical market reports, contemporaneously on a timely and effective basis in electronic form, via fax or mail. Selected technical market reports may also be posted on the MGI Securities website and davidchapman.com.

 

For Canadian Residents: This report has been approved by MGI Securities which accepts responsibility for this report and its dissemination in Canada. Canadian clients wishing to effect transactions should do so through a qualified salesperson of MGI Securities in their particular jurisdiction where their IA is licensed.

 

For US Residents: This report is not intended for distribution in the United States. 

 

Intellectual Property Notice

The materials contained herein are protected by copyright, trademark and other forms of proprietary rights and are owned or controlled by MGI Securities or the party credited as the provider of the information.

 

Regulatory

MGI SECURIITES is a member of the Canadian Investor Protection Fund (‘CIPF’) and the Investment Industry Regulatory Organization of Canada (‘IIROC’).

 

Copyright

All rights reserved. All material presented in this document may not be reproduced in whole or in part, or further published or distributed or referred to in any manner whatsoever, nor may the information, opinions or conclusions contained in it be referred to without in each case the prior express written consent of MGI Securities Inc.


-- Posted Thursday, 5 July 2012 | Digg This Article | Source: GoldSeek.com

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