Two Competing Weekly Patterns in Gold

Aug 2, 2009: 10:30 PM CST

There’s an interesting debate on what exactly is the dominant technical pattern in gold on the weekly chart.  Let’s take a look at the two possibilities and note possible price targets for both patterns.

Gold’s Symmetrical Triangle:

As I mentioned last week (in a more detailed post), Gold is forming a symmetrical triangle consolidation pattern, with trendlines that now end at the $975 and $900 level for support and resistance.

The lower trendline at $900 corresponds also with the rising 50 week EMA, so this would most likely be a support zone should gold fall to test this level anytime soon.

In terms of the price targets – we cannot assume we know the direction of the breakout from a consolidation pattern, so we’ll need to look at upside and downside targets.

To get the measurement (projection), you typically take the ‘height’ of the triangle, or the distance from where the top to the bottom of the first swing in the pattern occurs.  In this example, we’ll take the February 1,000 high and then measured down to the $850 (estimate) level.  This gives us a rough estimate of $150 for a target.

We would then add $150 to the breakout zone (let’s assume) at $975 to give us an upside target of $1,125.

To get a downside breakout target, we would subtract $150 from the $900 level to give us a target of $750 (which also corresponds with the rising 200 week SMA and prior support from late 2008).

My suggestion is to wait for a break, and not try to be a hero and call the breakout direction, because price has been known to surprise the majority.

Let’s turn now to the alternate pattern – that of a large-scale Inverse Head and Shoulders (a pattern discussed frequently by Adam Hewison of Market Club).

Gold’s Inverse Head & Shoulders:

We note two roughly symmetrical swings in mid-2008 and mid-2009 to reflect the “mirror image” of the two shoulders, which is then separated by a head off the October lows of 2008.

The neckline is – no surprise – the $1,000 key resistance level, which broken, would likely trigger a flurry of buying to the upside.  This pattern allows us to quantify a target by taking the distance from the neckline to the head, which is roughly $300, and then adding it to the upside breakout at $1,000 to give us an upside target of $1,300.

I do a special ‘bonus’ additional report in this week’s Intermarket Technical Report which also lists Fibonacci price retracement targets to watch and overlay with the above grids.  I also show an Elliott Count on gold and give a more detailed explanation of what to look for and how to trade potential moves.

The Intermarket Reports take a look at the monthly, weekly, and daily charts of the 10-Year T-Note, S&P 500, Gold, and Crude Oil markes as well as the US Dollar Index.  I note current technical structure, highlight how the timeframes interact to give a wholistic picture, and define how the intermarket forces work (and how movement in one market is expected to be reflected in another market).

Please check out the “more information” page for additional information and to subscribe to these informative 20+ page weekly reports.

Corey Rosenbloom, CMT Continue Reading…

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SPY Bearish Candles at the Highs

Aug 1, 2009: 6:27 PM CST

I wanted to show a quick update of the current SPY (which is similar to the DIA and QQQQ) ETF chart to note two ominous bearish candles at the recent highs of $100.oo.  Let’s take a look.

This chart shows the entire run-up from the early March 2009 lows to the current highs a few pennies shy of $100 (1,000 on the S&P 500 Index).

As price challenges this ‘magnet trade’ target, we see that the last two trading sessions have formed upside down doji candles, or more technically, shooting star patterns.  The telling sign is the long upper shadows which indicate price rejection of the highs.

The 3/10 Momentum Oscillator is also slightly rolling over, indicating perhaps that this swing up has ‘run its course’ and that a corrective move down is now forming – under normal circumstances.

My suggestion for the weekend is to take a moment to look at leading stocks (like AAPL, GOOG, XOM, WMT, INTC, etc) to see what type of candle formations have set-up at the recent highs in these stocks.

For example, in Google (GOOG), a bearish engulfing candle formed on Friday’s trading after Thursday’s doji – not a good sign.

Again, no guarantees of a reversal, but these bearish candles at the highs are glaring non-confirmations and could serve as early warning signals that a turn is around the corner – at the minimum, it’s not the type of ‘candle action’ bulls want to see at the highs.

Corey Rosenbloom, CMT
Afraid to Trade.com

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A Weekly Log and Normal View of Citigroup C July 31

Jul 31, 2009: 2:33 PM CST

A reader recently asked me for my take on Citigroup (C), as to whether or not the stock was perking up enough to warrant interest.  I thought we’d take a quick look at the Weekly Chart and note the differences in the Logarithmic and Arithmetic charts and note a key level for bulls to watch.

Citigroup (C) Arithmetic Chart:

The quick observation is that we’ve seen one of the most stellar and dramatic price drops of a major company – it should serve as a lesson to investors that “It Can’t Go Any Lower” is not the best mantra to have – it can go lower.

A key example is in mid to late 2008 when price had formed a four-swing (powerful) positive momentum divergence that completely failed to produce any upside action.  If sellers can shake off such ‘positive’ momentum, you know that the stock is going to go lower once it breaks the support from which the divergence formed (in this case, around $15.00).

Price bottomed at $0.97 just before a powerful rally ensued, taking price up so far to about $4.50, and price has inched its way down off that resistance level.

So far in 2009, the falling 20 week EMA has contained all price advances, despite significant volume surges (over 4 billion shares traded in one week at times) which could indicate accumulation, or the sense that “Gosh, prices of a ’solid’ company are so cheap, I just can’t pass up buying here and holding for perhaps the next 5 or 10 years.”

All other lessons aside, I would watch to see if buyers can push price convincingly above the falling 20 week EMA (green) at $3.50.

Let’s compare the cleanliness of the Algorithmic (all dollar changes are equal) to that of the compressed Logarithmic Chart (percentage moves are equal).

Citigroup (C) Logarithmic Chart:

The Log chart in this case is going to overemphasize recent prices (lower prices) which are larger percentage moves than higher prices, in which case the left side of the chart is compressed beyond recognition – a trade-off.

There is a down-sloping (black) trendline I’ve drawn that connects three price lows and also has served as key resistance as it is coincided with the falling 20 EMA.

Without going into much other detail, I wouldn’t be interested at all in this stock unless bulls can break above $3.50 – until then, price still remains in a downtrend making lower lows and lower highs; the EMA structure is in the most bearish orientation possible; and price is convincingly beneath all EMAs.

It’s an interesting chart, nonetheless.

Corey Rosenbloom, CMT
Afraid to Trade.com

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The 3 Three Push TICK Examples of July 30

Jul 30, 2009: 7:11 PM CST

I’ve never (or can’t remember) seeing three “Three Push” TICK Divergences on the same day, but July 30th’s intraday SPY (and @ES) charts gave us this repetitive and high probability reversal pattern.  Let’s take a quick look at it!


(Click for Full-Size Image)

The day began with an opening gap that pushed into the first “Three Push” reversal pattern, in which three symmetrical ’swings’ to new highs formed on lower high TICK readings – thus creating the divergence.

Price did reverse off these levels and later formed a “flat-line” divergence going into 11:30 am CST.

We were treated with an almost identical “Three Push” TICK Divergence with price at 12:30 pm CST as we saw the same ‘three pushes up’ in price that formed lower TICK highs on each swing.

Finally, we had a positive “Three Push” divergence going into 1:30 which resulted in a relatively short-lived swing to the upside.

You can learn more about the “Three Push” pattern at our free Education Page which will be a continually expanding resource for you.

For a full description of this chart and for an explanation of the trading strategies of the day, including how to monitor price to determine the type of day that forms (I would consider this a “Fang Day” if there was such a term!  Technically it was a Failed Trend Day up / Rounded Reversal), please subscribe to our new “Idealized Trades” daily summary service (more information here).

It’s unusual to have a three-push in the TICK but more common in the 3/10 or other momentum oscillators – it’s good to learn about this pattern because if offers great edge and repeats with decent frequency to offer plenty of opportunities for you.

Corey Rosenbloom, CMT Continue Reading…

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Year to Date Sector Returns as July ends

Jul 30, 2009: 1:59 PM CST

With the end of July upon us Friday, I thought it’d be a good idea to look at both absolute and relative performance of key sectors to see where money flow has concentrated.  Let’s take a look:

Here we see the absolute returns of the key sector SPDRs as shown from StockCharts.com.  The S&P 500 has increased 8% with the following sectors outperforming the S&P:

Consumer Discretionary/Retail (up 16%)
Technology (up 28%)
Materials (up 24%)

This is generally a ‘bullish’ sign according to the Sector Rotation model, as it can hint that strength is increasing in the “Aggressive” or “Offensive” sectors which could indicate building strength in this rally.

I might prefer Financials to be up more than the 1.5% they are to have more confidence, though most bank stocks have rallied sharply (some of which have even doubled) off the March lows in the market.  This is not picked up as much as this comparison began with the start of the year.

Let’s now move from Absolute Performance (in percentage basis) to see a Relative Percentage Comparison to the S&P 500:

We see the same things above, only 8% has been subtracted from each sector to reflect “relative” performance to the S&P 500.

There are only three sectors to outperform, and they are listed above.

The worst performing sector was Utilities (down 7.4%) which was trailed closely by Industrials (down 7%).  That’s a neutral outcome in the Sector Rotation model.

The insight comes from noting that the “Defensive” (generally the right side of the chart minus Financials) Sectors have all underperformed the S&P 500, which could be a sign that investors are pulling out of conservative, wealth preservation stances and rotating into more risk-taking practices.

We’ll continue to watch the model for additional insights that could give us clues about the direction of the market, and where to look for trading opportunities.

Corey Rosenbloom, CMT
Afraid to Trade.com

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