Gold is in the “Roof” Phase, and is Due for a Correction
The gold index now is in the “Roof” phase of the “Three-Peaks and a Domed House” pattern and faces a potential risk of the “Plunge” phase sooner or later. Recently the gold index has re-established an inverse relationship with the S&P 500 index. Currently gold reaches the “Roof” phase (bull trap) while the S&P 500 index gets into the “Basement” phase (bear trap).
Gold is due for a correction. The next move is the “Plunge” phase which has two most powerful down waves 26 and 28 in George Lindsay’s original “Three-Peaks and a Domed House” model. The price range of the “Plunge” phase for gold is from 1725 to 1300.
Gold Index is Forming an 18-Month “Bump-and-Run Reversal Top” Pattern
The gold index is forming an 18-month “Bump-and-Run Reversal Top” pattern in the daily chart, as shown in the chart below. Watch prices against the “Sell Line”. If prices stay below the “Sell Line”, the downside supports are 1) 1750 at the dotted pink line, 2) 1650 at the “warning Line”, or 3) 1500 at the “Lead-in Trend Line”.
Wake Up Call: Gold is in a 18-Month “Bump-and-Run Reversal Top” Pattern
(This section was originally posted on 8/24/2011 as “Special Mid-Week Update”)
The gold index is forming a
Bump-and-Run Reversal Top (read
here) pattern in an 18-month time span as shown in the daily chart below, with data updated as Wednesday, 8/24/2011. This pattern typically occurs when excessive speculation drives prices up steeply. According to Thomas Bulkowski, this pattern consists of three main phases:
1. A lead-in phase in which a lead-in trend line connecting the lows has a slope angle of about 30 degrees. Prices move in an orderly manner and the range of price oscillation defines the lead-in hight between the lead-in trend line and the warning line which is parallel to the lead-in trend line.
2. A bump phase where, after prices cross above the warning line, excessive speculation kicks in and the bump phase starts with fast rising prices following a sharp trend line slope with 45 degrees or more until prices reach a bump height with at least twice the lead-in height. Once the second parallel line gets crossed over, it serves as a sell line.
3. A run phase in which prices break below the lead-in trend line in a downhill run.
The gold index now is at a critical point. When prices break down the Sell Line at 1830, a big sell-off can get triggered. Then several levels of downside price targets for support could be:
1) The first target is 1750 for support from the dotted pink line.
2) The second target is 1650 for support from the warning line.
3) The third target is 1500 for support from the lead-in trend line.
The decline wave could be powerful and fast enough to break through several support levels. You may check where is gold now in real-time against these levels listed above. This type of “Bump-and-Run Reversal Top” pattern happened on silver before.
Gold has also got into a topping process in the “Roof” phase of the “Three-Peaks and a Domed House” pattern which I discussed in my weekly update of last weeks (see
here).
Silver Index is Still in Bump-and-Run Pattern
The silver index is in a “Bump-and-Run” pattern. The downside supports for silver are: 1) 39 at the “Lead-in Trend Line”, or 2) 33 at the “Target Line”
U.S. Dollar is in a 4-Month Horizontal Channel
The US dollar index is in a bottom process of a 4-month horizontal channel with the upper boundary of 76 and the lower boundary of 73. Waiting to see which side it will break out.
Asset Class Performance Ranking with Gold Leading
The following table is the percentage change of each asset class (in ETFs) against the 89-day exponential moving average (EMA89). Currently gold and treasury bond are outperforming. Oil and the equity market are underperforming.
Sector Performance Ranking with Precious Metals Sector Leading
The following table is the percentage change of sectors and major market indexes against the 89-day exponential moving average (EMA89). The Dow Jones Wilshire 5000 index, as an average or a benchmark of the total market, is 7.43% below the EMA89. Outperforming sectors are Precious Metals (2.66%), Utilities (-0.33%), and Consumer Goods (-2.73%). Underperforming sectors are Banks (-14.37%), Financials (-10.97%), and Semiconductors (-10.80%). The NASDAQ 100 (-4.52%) is outperforming the market, and the Russell 2000 Small-cap (-10.60%) is underperforming.
BRIC Stock Market Performance Ranking with Chinese Market Leading
The table below is the percentage change of the BRIC stock market indexes against the 89-day exponential moving average (EMA89). The Chinese market is outperforming the U.S. market, and the Russian, Indian, and Brazilian markets are underperforming the U.S. market.
