Gold continues to hold strongly just underneath the important
$1,462 energy level, as Tuesday was another narrow-range
consolidation day right around this level.
The 150-minute chart has been fully consolidated for a while,
with the fractal dimension holding steady at very high levels,
around 70. This tells us that the consolidation has been very tight
and "non-trendy", with prices oscillating with no clear direction.
This becomes important information to know when we realize that
markets constantly alternate between periods of consolidation (from
point A to point A), and periods of trending, linear movement (from
point A to point B).
The 150-minute chart is telling us that $1,462 is likely only a
temporary barrier, and if it gives way there should be plenty of
energy behind the move. The daily chart also confirms that there is
energy to move higher, easily as high as the next major fractal
target at $1,500.
However, there is also a major precedent for gold to come back
down for a quick 38.2% retracement to test the breakout at $1,442.
In a real way this would be the "easier" bullish path for gold to
follow, as it would take care of the necessary 38.2% retracement
right away, potentially avoiding a more serious pull-back down the
road.
Although it seems unlikely, a breakdown back under $1,441 would
be problematic for gold in this situation, as that would look like
a failed breakout, which often leads to a dramatic drop.
So all in all, gold looks like it is gearing up for a further
run higher, but we can't rule out a quick retracement back down to
$1,442. Although it seems counter-intuitive, a quick retracement
right here that easily holds $1,442 would ultimately be more
bullish for an extended upside move.
Wednesday was a mellow day in gold, but in this context --
coming right after a fresh breakout -- it was a potentially
significant day. The big danger in this type of pattern is a sudden
reversal after the breakout, but instead of that it looks like gold
is embarking on a sustainable move higher.
I still think it would be a better for gold to come back down
and get the necessary 38.2% retracement out of the way as quickly
as possible. This would involve a move back down to test the $1,442
level, and an easy rebound off there. Such a test would "set-in"
the breakout pattern and allow gold to proceed higher without much
lingering trouble.
The big fractal energy levels for this pattern are right at
$1,462 -- where prices hit the wall on Wednesday -- and then up
around $1,500. I think $1,462 will provide a formidable barrier to
further upside in the short-term, so that's why I'm favoring a
rather quick retracement in this situation back down to $1,442.
Thursday is also Day 11 for the new timing cycle, which is a
spot where quick reversals can take place. In the strongest
patterns these reversals can happen in both directions on the same
day. So a quick drop down to $1,442 and a rebound there would leave
a perfect Day 11 reversal behind on the chart, and would likely
free up gold to move higher into Day 21 in a few weeks time.
As I mentioned yesterday, I'm still just talking about the
shorter-term bullishness of this chart, as I still have major
doubts about the ultimate sustainability of a move higher. Another
way to look at this is that it is highly likely that gold will
provide a better opportunity for buying at some point in the
future, and probably a much better opportunity, too. There may be
some better selling opportunities in the near-term, but as a
long-term buy this is not a prime set-up for gold.
However, I do think a trader's mentality makes sense on the long
side, as the later stages of a growth pattern can get very
energetic, with prices moving huge distances in a short amount of
time. Gold has not shown many signs that it wants to move into such
a blow-off top, but it's wilder sibling silver is doing just this,
and gold may get sucked up into the vortex too.
One big problem for gold in a blow-off top scenario is that it
will likely spell the end for the long bull market. This is one of
those cases where gold bulls should be careful what they wish for.
It would be much better for the long-term health of the growth
pattern to see a typical 38.2% retracement, which would lay the
foundation for a move up to much, much higher levels 3 or 4 years
from now.
This bigger retracement is still a possibility, of course, so we
will have to wait and see if gold goes wild to the upside over the
first 64 days of this new cycle, into June. This would be a
thrilling ride in the short-term, but ultimately not a good thing
for the long-term.
Yes, I am aware David Nichols has had a few bad calls since Dec
2010, but in my opinion he is one of the best newsletter writers on
gold for the long term. He published a special report or "roadmap"
on gold in the spring of 2009 which I have cut and pasted below.
Gold was around $900 - $930 at the time. He correctly called for a
continued advance through 2010 with gold topping in January 2011
which it did. He should have stuck to his original forecast instead
of trying to fine tune it, but he was correct on gold topping out
in the correct time frame.
You really should read the entire report below as its quite
interesting as he applies his fractal analysis to other markets in
the past. As regards to the present he is bearish now on gold, but
I think he is wrong short term. It's very obvious on the daily
chart that gold has completed a inverse head and shoulders pattern
with objectives around $1,500. Whether the inverse h&s pattern
will play out is anyone's guess but assuming gold is still in a
primary bull market I think it will.
If the pattern plays out and we get to $1,500, then maybe we go
down for a while and David Nichols will be proven right. For the
moment he is on a cold streak but given his long term track record
I still have respect for his long term calls.
Special Report: The 64-month Parabolic
Growth Pattern
By David Nichols
March 2009 updated October 2009
Over the past month I have been doing intensive research into
the way parabolic growth patterns grow and develop in financial
markets.
Originally my plan was to go back and look at the most famous
"bubbles" in financial history to look for similarities to the
current pattern in gold. In my experience most market fractal
patterns are similar -- particularly parabolic growth patterns --
so I assumed I would indeed find some tendencies in past bubbles
that I could then apply to the current growth pattern in gold, to
help give us some idea about how such a pattern would typically
develop.
But once I started to dig deeper I was absolutely stunned at
what I was seeing.
To categorize these parabolic bubble patterns as similar would
be a wild understatement. These patterns are so alike that it
is amazing -- you might even say downright spooky.
And I chose this word -- "spooky" -- purposefully, as when I was
first comparing these bubble patterns I got that involuntary tingly
goose-bump reaction that comes from a sudden and unexpected glimpse
of something much bigger and more profound than our conscious minds
are able to grasp and understand.
It's sort of the same way that an awesome musical performance
triggers an involuntary emotional reaction -- often also with
goose-bumps -- as that musical moment gives you a glimpse of
something profound, and something deeper than our abilities to
consciously understand.
I am not a particularly religious person, at least in an
organized "go-to-church" sort of way, but I have to admit that the
further I get on my journey to discover the market's mysteries, the
more I start to understand the importance of the spiritual side of
human nature, and why it is an important part of every single
culture and civilization on planet earth.
I also strongly believe that our intelligence as humans in
comparison to the scale of the universe, and that it is ridiculous
to think that our minds have evolved and developed to the point
where we can understand how the natural world really works.
The idea of us understanding the cosmos is about as ludicrous as
the idea that an ant could read and appreciate Shakespeare's King
Lear.
On a cosmic level, we are the ants. And this analogy is
appropriate for markets in that we humans also follow behavior
patterns that create predictable structures, just as ants following
individual instinctive behaviors are able to create incredibly
complex and architecturally brilliant colonies.
Over the past month I've spent a lot of time trying to better
understand why these growth patterns are so consistent and
repeatable, and I've come to the conclusion that it has to do with
the fundamental way that things grow and develop in the natural
world. Nature has a blueprint for growth, and the way that
energy is added into an expanding system follows universal
principles of propagation and growth.
Financial markets are no different than any other natural
system. They also follow these same universal principles of
energy flow, propagation, and growth, and this is why there are
consistent and repeatable patterns in financial markets.
And the most amazing of all financial market patterns is the
parabolic "bubble" pattern.
The most astonishing similarity that I have so far found between
bubble patterns is they take 64 months to play out. The lead-in
periods can differ in length, but these preparatory periods are
also organized along highly similar lines.
But this is the truly amazing thing is this: from the time a
market goes into a steeper growth curve -- what I
call"hyper-drive"-- until it hits the final peak takes 64 months,
with only minor variation.
In a moment I'll show you just how this looks on numerous bubble
patterns, and I have no doubt that you will also be amazed.
It is one of those things that is so obvious in retrospect, and
makes you wonder why you didn't see it all along.
But before we look back at these famous bubble patterns, I want
to point out the tantalizing fact that gold looks to be right on
the verge of launching into the best part of this pattern, where
prices go ballistic to the upside.
If we play this last phase of the pattern in gold correctly --
both on the way up, and then on the way down -- it will quite
literally be a "life-changer" for those who have the courage to
act.
Think of it this way: What if you knew the precise blueprint of
the internet bubble well ahead of time -- say, back in 1997 -- many
months before the final blow-off phase? And then what if you
also knew precisely when to take those giant profits and throw them
on to the short side? What would your life be like if you
have played that perfectly, both up and down?
I think we're going to get the exact same chance now with gold,
and this time we can get it just right.
But I also have to warn that we don't want to get too far ahead
of ourselves with dreams of life-changing riches, as there is still
a bit more work to do before we can be certain that gold is indeed
moving into this "hyper-drive" phase of its parabolic growth
pattern.
But the signs look very, very good.
So let's go back and look at the most famous parabolic growth
patterns -- or "bubbles" -- in financial history. We'll look
specifically at these patterns:
• Dow Industrials in the 1920s
• Nikkei in the 1980s
• Nasdaq 100 in the 1990s
• the recent bubble in crude oil
• the recent housing bubble, using the stock of luxury
home builder Toll Brothers (TOL) as a proxy for this market
There are other bubble markets we could also look at -- and this
same typical 64-month growth pattern is there in all of them -- but
these should be enough examples to give us a great idea about what
to expect in gold.
We'll start by looking at two of the most recent bubbles, in
housing and crude oil.
Below is a monthly chart of the growth pattern in Toll Brothers
(TOL), which is a perfect representative stock for the bubble in
housing and luxury homebuilding from 2000 to 2005. All of the
charts I show in this report are monthly charts, and the numbers
that you see on the charts reflects where the pattern is along this
1 to 64 month time-frame.
The first thing to notice on this chart is how the first
"sprout" came precisely 65 months before the blow-off peak.
As I mentioned earlier, there is slight variance in each pattern,
as many of the blow-off tops come precisely at month 64 -- some
come at month 63, and others at month 65. I think this
actually has to do with the way the calendar aligns with the actual
number of trading days in the pattern -- but that research is a
little too deep for the purposes of this report. We just need
to know that the top always arrives right around the 64th month
after the initial growth spurt.
Also notice how the final third of the pattern -- after month
42, and then month 56 -- was where the pattern went absolutely
ballistic to the upside. This is highly typical of parabolic
patterns, as invariably the largest gains come during the last
stage of the pattern.
This is a very important point to keep in mind, as gold could be
approaching just such an acceleration point into a similar
ballistic phase. I'll talk more about this later, after we've
seen a few more patterns.
The growth pattern in crude oil from 2003 to 2008 is almost
identical to the homebuilding bubble, which suggests that these
bubbles were fundamentally driven by the same thing -- namely, the
loss of purchasing power in the dollar over this time period.
I don't want to veer off topic too much, but the underlying
currency is an extremely important component in parabolic bubble
patterns. These patterns can really only occur when a rush of
new money is flooding into an economy, as was the case during the
earlier parts of this decade, with historically loose credit
conditions. The private sector was very busy creating money
at unprecedented rates as anybody and everybody could get a loan
for just about anything.
This had a massive effect on asset prices -- how could it not?
-- as economics 101 tells us that prices go up when there is more
money in circulation. So it's not a coincidence that home
prices, crude oil, and other tangible assets came crashing down in
dollar terms when credit conditions got tighter. After all,
the homes and the oil are exactly the same stuff -- the only thing
that changed was the dollar value we attach to them. The
amount of dollars sloshing around the economy has a huge effect on
prices, and not many people that most of the money supply comes
from the private sector, and not the government.
Getting back to the bubble in crude oil, we can see a slightly
different shape to the lead-in period, but still it took 63 months
to hit the blow-off top after the growth curve shifted towards
hyper-drive.
And once again, the best gains came after month 45, with prices
going ballistic after that bottom. They also went straight up from
month 58 to the peak, which is common for this pattern.
A look way back at the Dow Industrials in the 1920s shows
precisely this same parabolic 64-month growth pattern.
So are you already starting to see the uncanny similarity
between these bubble patterns yet?
After a 32-month lead-in period, the Dow hit the "sprout point"
for the steeper growth path, quickly accelerating up to an interim
top at month 20, and that brought in a consolidation period that
lasted until the precise half-way point of the big pattern, at
month 32.
The Dow went into maximum hyper-drive over the second half of
the pattern, with the final burst starting off a brief pullback in
month 45. From there it was a ballistic launch to the final
spike high in month 64.
It's a bit harder to get data on the Nikkei from the 1980s, as
it's not included in any of the charting packages that I have --
and I have a bunch -- but fortunately Yahoo has vastly improved
their web charts and has enough back data on the Nikkei to enable
us to take a look at this amazing bubble pattern.
I apologize that this chart looks so much different, but we can
still see how the months unfolded. On this Nikkei bubble
pattern the most serious correction happened around month 40, and
the bottom following this correction launched the final ballistic
phase which culminated in a top at month 65.
The last chart I'm going to show you before looking at gold is
the "grand-daddy" of all market bubbles -- the Nasdaq 100 in the
1990s -- which was fueled by a wild mass hysteria for internet
stocks. What a remarkable period that was, when ridiculous
profits were sloshing around the financial markets day after
day. Of course it all came crashing down, but it was quite a
heady experience while it lasted.
The bubble in the NDX was so incredibly large that the earliest
"sprout" stage barely registers as a blip on the monthly chart of
the entire pattern, as it's so small compared to the huge moves
that came at the end of the pattern with the typical ballistic,
blow-off phase.
But these early moves looked very impressive at the time, as we
can see on this chart that is scaled to reflect only the early
stages of this growth pattern in the NDX.
What I find most intriguing about this early NDX chart is how
similar it is to the current pattern in gold.
There is the same well-organized lead-in period, and then gold
takes off on a steeper growth curve at a very similar spot, which
I've labeled Month 1. Of course there is a chance that I'm
wrong about labeling this Month 1 of the 64-month growth pattern,
but it certainly fits with everything I've seen in past bubble
patterns.
If this is indeed the early-to-mid stages of a typical 64-month
parabolic bubble pattern in gold, then the top will come in around
January 2011, and could follow a pattern like the one on the chart
below.
It's nearly impossible to forecast how much energy will come in
during the ballistic phase of this type of growth pattern, but it
is important to note that Month 45 for gold is scheduled for next
month -- May 2009. This currently is Month 44.
So any significant corrective pattern that bottoms either this
month or next month could lead to a massive blow-off ballistic move
for gold. It could be exciting!
Again, let's not get ahead of ourselves with dreams of untold
riches, but then again, let's get ready to act courageously --but
prudently -- if this pattern continues to develop along this
expected path.
As a final note, I would like to address a question that may
come up in your mind, and I spent a lot of time asking myself
this same question, as it's hugely important. What if the top
back in March 2008 was month 64 of gold's parabolic growth
pattern? Does that mean gold is just hanging on here, on
the verge of crashing?
As we've seen from past bubble patterns, the aftermath of the
spike top is not a pretty sight, as prices come down fast and hard,
and they don't recover. So the fact that gold has not only
recovered so quickly off the quick test down to $681
-- and had a full 4-month recovery -- argues strongly that
this growth pattern is not finished, but is instead just about
to enter the spectacular ballistic phase where prices go up at an
astonishing rate.
Now that we're all clued in to this 64-month bubble pattern, I
will of course keep you updated in my daily reports on how
this is growing and developing.
Remember, if this pattern does develop as expected, then we can
generate enormous profits both on the way up, and then on the way
down. So this could be a rare opportunity, where we get one
of these patterns just right, both up and down.
Even more tantalizing is the idea that we now have a framework
for interpreting future parabolic growth patterns,
as I’m certain there will be plenty more bubbles over the
coming years and decades. It is inevitable that these
patterns will form in an economy with a floating exchange rate,
like we have, where the money supply is dictated by credit creation
in the private sector, and the free exchange of currencies across
borders.
Let's hope there are plenty more 64-month bubble patterns in our
future!
The scheduled peak for gold is January 2011, which will be Month
64. I have started thinking in terms of 86-day cycles when
considering long time-spans like this, so this is still 3 1/2
86-day cycles away from the end of this current cycle, on Nov.
10th. To refresh, each 86-day cycle takes almost precisely 4
calendar months, depending on holidays, with each 43-day half-cycle
taking 2 calendar months.
Out of these remaining 3 1/2 cycles, gold should consolidate for
either 43 or 86 trading days -- either 2 months, or 4 months. This
means that gold should be going up -- scratch that, going sharply
up -- for 8 or 10 of the months leading up to the peak in Jan.
2011.
This is how a market can cover such great distances during the
final phase of a bubble growth pattern. The upside pressure is
relentless, as the global flow of speculative capital
over-concentrates in a narrow sector.
As far as price targets, I have some big energy levels already
identified, but I think knowing the timing of this pattern is more
important than the price projections.
The first phase up should carry gold somewhere up into the
mid-$1,000s, with $1,420 and $1,580 the big target energy levels in
this area.
Ideally the expected 2 to 4 month consolidation will play out
after this move up. Then gold will be free to move up to the final
peak of this growth pattern, which should be somewhere around
$2,250.
It's interesting to note that this $2,250 target is very close
to spike high in gold from 1980, adjusted for inflation.
So again, this road-map is subject to revision as far as price
projections, depending on how things develop in the early stages of
this breakout move. But the timing part of this pattern looks to be
spot-on, so we should expect a strong upside flow to continue --
with only a minimal pause -- until Jan. 2011.
Now let's turn our attention to what is likely to happen in
2011, after the spike top that should come very early that
year.
There is a highly-characteristic post-bubble pattern that we
will be looking for in early 2011. There is a very good chance gold
will linger up near the highs over the first half of 2011, as a big
reversal pattern forms on the weekly, or even monthly, chart.
When a market is getting ready for a big collapse, there is
invariably this signature pattern, which starts with a sudden,
unexpected, and often harrowing drop from a fresh all-time high.
Very quickly -- often within a few days or a week -- the market
will stabilize, and it will appear that the good times can keep on
rolling. But that is the first major warning sign that something
different is developing.
After that initial drop there is a longer period of up-and-down
volatility that generally will stay close to the highs. This should
develop over the first half of 2011.
But at some point in mid-2011 there will be a sudden breakdown
out of this topping pattern, and gold will collapse very quickly
from there, as the over-concentration of speculative capital flees
in a rush.
Every time I mention a post-bubble decline in 2011, I promptly
get challenged that there really is no way that gold will come back
down like this, and that with the world backdrop it's inevitable
that gold will keep going up indefinitely, up to $5,000 or even
$10,000 or higher if things get really bad.
Most of these arguments are built upon the premise that the
dollar will completely and totally collapse as a viable currency,
much less as a reserve currency.
Personally I am not drinking the Kool-aid on the impending
demise of the dollar. Early in my investing career, a wise sage
warned me that the smarter and more analytical you are, the easier
it becomes to believe the pessimistic side of an economic argument.
You actually have to force yourself to remain objective and also
look at what can go right.
Of course the dollar can lose lots of its purchasing power, as
we're seeing, but that doesn't mean it's going to completely
collapse. Eventually such a collapse is possible, even probable,
but this is many big cycles in the future, probably 80 years or
more. And the reason for this is simple: what are the alternatives
to the U.S. and the dollar? China? Russia? Europe?
For all its flaws, the U.S. is the still the place where capital
is treated the best, which comes back to our Constitution and the
consistent rule of law in this country. Clearly our system is far
from perfect, but where would you rather have a business dispute?
In the U.S, or in China? Or how about Russia? Or even France?
I think you see my point. Until a better system emerges to
protect the rights of investors and their capital, the U.S. will
remain pre-eminent. Undoing this fundamental advantage will be a
multi-generational thing, and not something that happens
quickly.
If I'm wrong about this, I'll happily admit it and go right back
to the long side on gold, and keep riding it up to the
stratosphere.
But if I'm right, and gold is in a classic boom-and-bust
pattern, then I will strongly urge you -- multiple times, as
vehemently as possible -- to reconsider holding through a decline,
as such a collapse could wipe out most of your net worth.
Of course this collapse in 2011 is still quite a ways in the
future. And we should be able to navigate this period very well,
with our fore-knowledge of how this pattern develops. In fact, I
think 2011 will be the most profitable single year of the gold
bubble pattern, for those select few who have the fortitude to
right the market down, after first riding it up.
The positive jobs report provided the expected jolt of energy
into the gold market, but it was not enough to break prices out of
this long consolidation pattern.
The knee-jerk reaction to the addition of 230,000 private sector
jobs in March was a quick sell-off down to again tag the $1,412
energy level, which once again showed itself to be a particularly
strong "hot zone." This is now the 4th time that gold has rebounded
off $1,412, and each time it has spent very little time trading
around this level.
But again, the jury is still out on how this consolidation
period will resolve.
Obviously the first part of this new timing cycle is turning out
to be a consolidation pattern, and lately it's been doing a great
job of hanging up near the highs. But we've learned with this gold
pattern that this doesn't count for much, as the break is actually
more likely to come to the downside after a triangle pattern. The
upside moves tend to go, and go, and keep on going.
The thing about a consolidation pattern, particularly a long
one, is that you can make a convincing case for the next trend to
come in either direction. So I think we have to fall back on the
where gold is in the bigger cycle, and clearly here in 2011 gold
has not been responding as it did earlier in the growth pattern.
We've seen uprisings in the Middle East, bombing missions in Libya,
a massive earthquake in Japan with a nuclear component, and still
gold has not been able to respond as it did from 2005 to 2010.
The likely conclusion is the cycle is shifting, but it's
undergoing a long, rounded transition period, rather than the
straight-up, straight-down end of cycle pattern that is frequently
seen. I believe this means the straight-up, straight-down pattern
is still in gold's future, but that it will be delayed until gold
works through a period of growing confidence that the Fed and the
government finally have the economy headed in the right
direction.
Is this a day trading system, if so what are the particulars and
there are thousands of day trading systems. Depending on the
parameters of each system you could be up or down big for the
month
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What newsletter service is this,
McHugh.. blah blah blah
Posted by tims69 on 8th of Apr 2011 at 08:59 am
What newsletter service is this, sounds interesting
Fractal Gold Report
Posted by tims69 on 7th of Apr 2011 at 06:36 pm
Gold continues to hold strongly just underneath the important $1,462 energy level, as Tuesday was another narrow-range consolidation day right around this level.
The 150-minute chart has been fully consolidated for a while, with the fractal dimension holding steady at very high levels, around 70. This tells us that the consolidation has been very tight and "non-trendy", with prices oscillating with no clear direction. This becomes important information to know when we realize that markets constantly alternate between periods of consolidation (from point A to point A), and periods of trending, linear movement (from point A to point B).
The 150-minute chart is telling us that $1,462 is likely only a temporary barrier, and if it gives way there should be plenty of energy behind the move. The daily chart also confirms that there is energy to move higher, easily as high as the next major fractal target at $1,500.
However, there is also a major precedent for gold to come back down for a quick 38.2% retracement to test the breakout at $1,442. In a real way this would be the "easier" bullish path for gold to follow, as it would take care of the necessary 38.2% retracement right away, potentially avoiding a more serious pull-back down the road.
Although it seems unlikely, a breakdown back under $1,441 would be problematic for gold in this situation, as that would look like a failed breakout, which often leads to a dramatic drop.
So all in all, gold looks like it is gearing up for a further run higher, but we can't rule out a quick retracement back down to $1,442. Although it seems counter-intuitive, a quick retracement right here that easily holds $1,442 would ultimately be more bullish for an extended upside move.
Fractal Gold Report
Posted by tims69 on 7th of Apr 2011 at 06:55 am
Wednesday was a mellow day in gold, but in this context -- coming right after a fresh breakout -- it was a potentially significant day. The big danger in this type of pattern is a sudden reversal after the breakout, but instead of that it looks like gold is embarking on a sustainable move higher.
I still think it would be a better for gold to come back down and get the necessary 38.2% retracement out of the way as quickly as possible. This would involve a move back down to test the $1,442 level, and an easy rebound off there. Such a test would "set-in" the breakout pattern and allow gold to proceed higher without much lingering trouble.
The big fractal energy levels for this pattern are right at $1,462 -- where prices hit the wall on Wednesday -- and then up around $1,500. I think $1,462 will provide a formidable barrier to further upside in the short-term, so that's why I'm favoring a rather quick retracement in this situation back down to $1,442.
Thursday is also Day 11 for the new timing cycle, which is a spot where quick reversals can take place. In the strongest patterns these reversals can happen in both directions on the same day. So a quick drop down to $1,442 and a rebound there would leave a perfect Day 11 reversal behind on the chart, and would likely free up gold to move higher into Day 21 in a few weeks time.
As I mentioned yesterday, I'm still just talking about the shorter-term bullishness of this chart, as I still have major doubts about the ultimate sustainability of a move higher. Another way to look at this is that it is highly likely that gold will provide a better opportunity for buying at some point in the future, and probably a much better opportunity, too. There may be some better selling opportunities in the near-term, but as a long-term buy this is not a prime set-up for gold.
However, I do think a trader's mentality makes sense on the long side, as the later stages of a growth pattern can get very energetic, with prices moving huge distances in a short amount of time. Gold has not shown many signs that it wants to move into such a blow-off top, but it's wilder sibling silver is doing just this, and gold may get sucked up into the vortex too.
One big problem for gold in a blow-off top scenario is that it will likely spell the end for the long bull market. This is one of those cases where gold bulls should be careful what they wish for. It would be much better for the long-term health of the growth pattern to see a typical 38.2% retracement, which would lay the foundation for a move up to much, much higher levels 3 or 4 years from now.
This bigger retracement is still a possibility, of course, so we will have to wait and see if gold goes wild to the upside over the first 64 days of this new cycle, into June. This would be a thrilling ride in the short-term, but ultimately not a good thing for the long-term.
As regards to Fractal Gold Report
Posted by tims69 on 4th of Apr 2011 at 10:12 am
Yes, I am aware David Nichols has had a few bad calls since Dec 2010, but in my opinion he is one of the best newsletter writers on gold for the long term. He published a special report or "roadmap" on gold in the spring of 2009 which I have cut and pasted below. Gold was around $900 - $930 at the time. He correctly called for a continued advance through 2010 with gold topping in January 2011 which it did. He should have stuck to his original forecast instead of trying to fine tune it, but he was correct on gold topping out in the correct time frame.
You really should read the entire report below as its quite interesting as he applies his fractal analysis to other markets in the past. As regards to the present he is bearish now on gold, but I think he is wrong short term. It's very obvious on the daily chart that gold has completed a inverse head and shoulders pattern with objectives around $1,500. Whether the inverse h&s pattern will play out is anyone's guess but assuming gold is still in a primary bull market I think it will.
If the pattern plays out and we get to $1,500, then maybe we go down for a while and David Nichols will be proven right. For the moment he is on a cold streak but given his long term track record I still have respect for his long term calls.
Special Report: The 64-month Parabolic Growth Pattern
By David Nichols
March 2009 updated October 2009
Over the past month I have been doing intensive research into the way parabolic growth patterns grow and develop in financial markets.
Originally my plan was to go back and look at the most famous "bubbles" in financial history to look for similarities to the current pattern in gold. In my experience most market fractal patterns are similar -- particularly parabolic growth patterns -- so I assumed I would indeed find some tendencies in past bubbles that I could then apply to the current growth pattern in gold, to help give us some idea about how such a pattern would typically develop.
But once I started to dig deeper I was absolutely stunned at what I was seeing.
To categorize these parabolic bubble patterns as similar would be a wild understatement. These patterns are so alike that it is amazing -- you might even say downright spooky.
And I chose this word -- "spooky" -- purposefully, as when I was first comparing these bubble patterns I got that involuntary tingly goose-bump reaction that comes from a sudden and unexpected glimpse of something much bigger and more profound than our conscious minds are able to grasp and understand.
It's sort of the same way that an awesome musical performance triggers an involuntary emotional reaction -- often also with goose-bumps -- as that musical moment gives you a glimpse of something profound, and something deeper than our abilities to consciously understand.
I am not a particularly religious person, at least in an organized "go-to-church" sort of way, but I have to admit that the further I get on my journey to discover the market's mysteries, the more I start to understand the importance of the spiritual side of human nature, and why it is an important part of every single culture and civilization on planet earth.
I also strongly believe that our intelligence as humans in comparison to the scale of the universe, and that it is ridiculous to think that our minds have evolved and developed to the point where we can understand how the natural world really works. The idea of us understanding the cosmos is about as ludicrous as the idea that an ant could read and appreciate Shakespeare's King Lear.
On a cosmic level, we are the ants. And this analogy is appropriate for markets in that we humans also follow behavior patterns that create predictable structures, just as ants following individual instinctive behaviors are able to create incredibly complex and architecturally brilliant colonies.
Over the past month I've spent a lot of time trying to better understand why these growth patterns are so consistent and repeatable, and I've come to the conclusion that it has to do with the fundamental way that things grow and develop in the natural world. Nature has a blueprint for growth, and the way that energy is added into an expanding system follows universal principles of propagation and growth.
Financial markets are no different than any other natural system. They also follow these same universal principles of energy flow, propagation, and growth, and this is why there are consistent and repeatable patterns in financial markets.
And the most amazing of all financial market patterns is the parabolic "bubble" pattern.
The most astonishing similarity that I have so far found between bubble patterns is they take 64 months to play out. The lead-in periods can differ in length, but these preparatory periods are also organized along highly similar lines.
But this is the truly amazing thing is this: from the time a market goes into a steeper growth curve -- what I call"hyper-drive"-- until it hits the final peak takes 64 months, with only minor variation.
In a moment I'll show you just how this looks on numerous bubble patterns, and I have no doubt that you will also be amazed. It is one of those things that is so obvious in retrospect, and makes you wonder why you didn't see it all along.
But before we look back at these famous bubble patterns, I want to point out the tantalizing fact that gold looks to be right on the verge of launching into the best part of this pattern, where prices go ballistic to the upside.
If we play this last phase of the pattern in gold correctly -- both on the way up, and then on the way down -- it will quite literally be a "life-changer" for those who have the courage to act.
Think of it this way: What if you knew the precise blueprint of the internet bubble well ahead of time -- say, back in 1997 -- many months before the final blow-off phase? And then what if you also knew precisely when to take those giant profits and throw them on to the short side? What would your life be like if you have played that perfectly, both up and down?
I think we're going to get the exact same chance now with gold, and this time we can get it just right.
But I also have to warn that we don't want to get too far ahead of ourselves with dreams of life-changing riches, as there is still a bit more work to do before we can be certain that gold is indeed moving into this "hyper-drive" phase of its parabolic growth pattern.
But the signs look very, very good.
So let's go back and look at the most famous parabolic growth patterns -- or "bubbles" -- in financial history. We'll look specifically at these patterns:
• Dow Industrials in the 1920s
• Nikkei in the 1980s
• Nasdaq 100 in the 1990s
• the recent bubble in crude oil
• the recent housing bubble, using the stock of luxury home builder Toll Brothers (TOL) as a proxy for this market
There are other bubble markets we could also look at -- and this same typical 64-month growth pattern is there in all of them -- but these should be enough examples to give us a great idea about what to expect in gold.
We'll start by looking at two of the most recent bubbles, in housing and crude oil.
Below is a monthly chart of the growth pattern in Toll Brothers (TOL), which is a perfect representative stock for the bubble in housing and luxury homebuilding from 2000 to 2005. All of the charts I show in this report are monthly charts, and the numbers that you see on the charts reflects where the pattern is along this 1 to 64 month time-frame.
The first thing to notice on this chart is how the first "sprout" came precisely 65 months before the blow-off peak. As I mentioned earlier, there is slight variance in each pattern, as many of the blow-off tops come precisely at month 64 -- some come at month 63, and others at month 65. I think this actually has to do with the way the calendar aligns with the actual number of trading days in the pattern -- but that research is a little too deep for the purposes of this report. We just need to know that the top always arrives right around the 64th month after the initial growth spurt.
Also notice how the final third of the pattern -- after month 42, and then month 56 -- was where the pattern went absolutely ballistic to the upside. This is highly typical of parabolic patterns, as invariably the largest gains come during the last stage of the pattern.
This is a very important point to keep in mind, as gold could be approaching just such an acceleration point into a similar ballistic phase. I'll talk more about this later, after we've seen a few more patterns.
The growth pattern in crude oil from 2003 to 2008 is almost identical to the homebuilding bubble, which suggests that these bubbles were fundamentally driven by the same thing -- namely, the loss of purchasing power in the dollar over this time period.
I don't want to veer off topic too much, but the underlying currency is an extremely important component in parabolic bubble patterns. These patterns can really only occur when a rush of new money is flooding into an economy, as was the case during the earlier parts of this decade, with historically loose credit conditions. The private sector was very busy creating money at unprecedented rates as anybody and everybody could get a loan for just about anything.
This had a massive effect on asset prices -- how could it not? -- as economics 101 tells us that prices go up when there is more money in circulation. So it's not a coincidence that home prices, crude oil, and other tangible assets came crashing down in dollar terms when credit conditions got tighter. After all, the homes and the oil are exactly the same stuff -- the only thing that changed was the dollar value we attach to them. The amount of dollars sloshing around the economy has a huge effect on prices, and not many people that most of the money supply comes from the private sector, and not the government.
Getting back to the bubble in crude oil, we can see a slightly different shape to the lead-in period, but still it took 63 months to hit the blow-off top after the growth curve shifted towards hyper-drive.
And once again, the best gains came after month 45, with prices going ballistic after that bottom. They also went straight up from month 58 to the peak, which is common for this pattern.
A look way back at the Dow Industrials in the 1920s shows precisely this same parabolic 64-month growth pattern.
So are you already starting to see the uncanny similarity between these bubble patterns yet?
After a 32-month lead-in period, the Dow hit the "sprout point" for the steeper growth path, quickly accelerating up to an interim top at month 20, and that brought in a consolidation period that lasted until the precise half-way point of the big pattern, at month 32.
The Dow went into maximum hyper-drive over the second half of the pattern, with the final burst starting off a brief pullback in month 45. From there it was a ballistic launch to the final spike high in month 64.
It's a bit harder to get data on the Nikkei from the 1980s, as it's not included in any of the charting packages that I have -- and I have a bunch -- but fortunately Yahoo has vastly improved their web charts and has enough back data on the Nikkei to enable us to take a look at this amazing bubble pattern.
I apologize that this chart looks so much different, but we can still see how the months unfolded. On this Nikkei bubble pattern the most serious correction happened around month 40, and the bottom following this correction launched the final ballistic phase which culminated in a top at month 65.
The last chart I'm going to show you before looking at gold is the "grand-daddy" of all market bubbles -- the Nasdaq 100 in the 1990s -- which was fueled by a wild mass hysteria for internet stocks. What a remarkable period that was, when ridiculous profits were sloshing around the financial markets day after day. Of course it all came crashing down, but it was quite a heady experience while it lasted.
The bubble in the NDX was so incredibly large that the earliest "sprout" stage barely registers as a blip on the monthly chart of the entire pattern, as it's so small compared to the huge moves that came at the end of the pattern with the typical ballistic, blow-off phase.
But these early moves looked very impressive at the time, as we can see on this chart that is scaled to reflect only the early stages of this growth pattern in the NDX.
What I find most intriguing about this early NDX chart is how similar it is to the current pattern in gold.
There is the same well-organized lead-in period, and then gold takes off on a steeper growth curve at a very similar spot, which I've labeled Month 1. Of course there is a chance that I'm wrong about labeling this Month 1 of the 64-month growth pattern, but it certainly fits with everything I've seen in past bubble patterns.
If this is indeed the early-to-mid stages of a typical 64-month parabolic bubble pattern in gold, then the top will come in around January 2011, and could follow a pattern like the one on the chart below.
It's nearly impossible to forecast how much energy will come in during the ballistic phase of this type of growth pattern, but it is important to note that Month 45 for gold is scheduled for next month -- May 2009. This currently is Month 44.
So any significant corrective pattern that bottoms either this month or next month could lead to a massive blow-off ballistic move for gold. It could be exciting!
Again, let's not get ahead of ourselves with dreams of untold riches, but then again, let's get ready to act courageously --but prudently -- if this pattern continues to develop along this expected path.
As a final note, I would like to address a question that may come up in your mind, and I spent a lot of time asking myself this same question, as it's hugely important. What if the top back in March 2008 was month 64 of gold's parabolic growth pattern? Does that mean gold is just hanging on here, on the verge of crashing?
As we've seen from past bubble patterns, the aftermath of the spike top is not a pretty sight, as prices come down fast and hard, and they don't recover. So the fact that gold has not only recovered so quickly off the quick test down to $681 -- and had a full 4-month recovery -- argues strongly that this growth pattern is not finished, but is instead just about to enter the spectacular ballistic phase where prices go up at an astonishing rate.
Now that we're all clued in to this 64-month bubble pattern, I will of course keep you updated in my daily reports on how this is growing and developing.
Remember, if this pattern does develop as expected, then we can generate enormous profits both on the way up, and then on the way down. So this could be a rare opportunity, where we get one of these patterns just right, both up and down.
Even more tantalizing is the idea that we now have a framework for interpreting future parabolic growth patterns, as I’m certain there will be plenty more bubbles over the coming years and decades. It is inevitable that these patterns will form in an economy with a floating exchange rate, like we have, where the money supply is dictated by credit creation in the private sector, and the free exchange of currencies across borders.
Let's hope there are plenty more 64-month bubble patterns in our future!
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Update in Late October, 2009
The scheduled peak for gold is January 2011, which will be Month 64. I have started thinking in terms of 86-day cycles when considering long time-spans like this, so this is still 3 1/2 86-day cycles away from the end of this current cycle, on Nov. 10th. To refresh, each 86-day cycle takes almost precisely 4 calendar months, depending on holidays, with each 43-day half-cycle taking 2 calendar months.
Out of these remaining 3 1/2 cycles, gold should consolidate for either 43 or 86 trading days -- either 2 months, or 4 months. This means that gold should be going up -- scratch that, going sharply up -- for 8 or 10 of the months leading up to the peak in Jan. 2011.
This is how a market can cover such great distances during the final phase of a bubble growth pattern. The upside pressure is relentless, as the global flow of speculative capital over-concentrates in a narrow sector.
As far as price targets, I have some big energy levels already identified, but I think knowing the timing of this pattern is more important than the price projections.
The first phase up should carry gold somewhere up into the mid-$1,000s, with $1,420 and $1,580 the big target energy levels in this area.
Ideally the expected 2 to 4 month consolidation will play out after this move up. Then gold will be free to move up to the final peak of this growth pattern, which should be somewhere around $2,250.
It's interesting to note that this $2,250 target is very close to spike high in gold from 1980, adjusted for inflation.
So again, this road-map is subject to revision as far as price projections, depending on how things develop in the early stages of this breakout move. But the timing part of this pattern looks to be spot-on, so we should expect a strong upside flow to continue -- with only a minimal pause -- until Jan. 2011.
Now let's turn our attention to what is likely to happen in 2011, after the spike top that should come very early that year.
There is a highly-characteristic post-bubble pattern that we will be looking for in early 2011. There is a very good chance gold will linger up near the highs over the first half of 2011, as a big reversal pattern forms on the weekly, or even monthly, chart.
When a market is getting ready for a big collapse, there is invariably this signature pattern, which starts with a sudden, unexpected, and often harrowing drop from a fresh all-time high. Very quickly -- often within a few days or a week -- the market will stabilize, and it will appear that the good times can keep on rolling. But that is the first major warning sign that something different is developing.
After that initial drop there is a longer period of up-and-down volatility that generally will stay close to the highs. This should develop over the first half of 2011.
But at some point in mid-2011 there will be a sudden breakdown out of this topping pattern, and gold will collapse very quickly from there, as the over-concentration of speculative capital flees in a rush.
Every time I mention a post-bubble decline in 2011, I promptly get challenged that there really is no way that gold will come back down like this, and that with the world backdrop it's inevitable that gold will keep going up indefinitely, up to $5,000 or even $10,000 or higher if things get really bad.
Most of these arguments are built upon the premise that the dollar will completely and totally collapse as a viable currency, much less as a reserve currency.
Personally I am not drinking the Kool-aid on the impending demise of the dollar. Early in my investing career, a wise sage warned me that the smarter and more analytical you are, the easier it becomes to believe the pessimistic side of an economic argument. You actually have to force yourself to remain objective and also look at what can go right.
Of course the dollar can lose lots of its purchasing power, as we're seeing, but that doesn't mean it's going to completely collapse. Eventually such a collapse is possible, even probable, but this is many big cycles in the future, probably 80 years or more. And the reason for this is simple: what are the alternatives to the U.S. and the dollar? China? Russia? Europe?
For all its flaws, the U.S. is the still the place where capital is treated the best, which comes back to our Constitution and the consistent rule of law in this country. Clearly our system is far from perfect, but where would you rather have a business dispute? In the U.S, or in China? Or how about Russia? Or even France?
I think you see my point. Until a better system emerges to protect the rights of investors and their capital, the U.S. will remain pre-eminent. Undoing this fundamental advantage will be a multi-generational thing, and not something that happens quickly.
If I'm wrong about this, I'll happily admit it and go right back to the long side on gold, and keep riding it up to the stratosphere.
But if I'm right, and gold is in a classic boom-and-bust pattern, then I will strongly urge you -- multiple times, as vehemently as possible -- to reconsider holding through a decline, as such a collapse could wipe out most of your net worth.
Of course this collapse in 2011 is still quite a ways in the future. And we should be able to navigate this period very well, with our fore-knowledge of how this pattern develops. In fact, I think 2011 will be the most profitable single year of the gold bubble pattern, for those select few who have the fortitude to right the market down, after first riding it up.
Commodities
Posted by tims69 on 4th of Apr 2011 at 08:49 am
The positive jobs report provided the expected jolt of energy into the gold market, but it was not enough to break prices out of this long consolidation pattern.
The knee-jerk reaction to the addition of 230,000 private sector jobs in March was a quick sell-off down to again tag the $1,412 energy level, which once again showed itself to be a particularly strong "hot zone." This is now the 4th time that gold has rebounded off $1,412, and each time it has spent very little time trading around this level.
But again, the jury is still out on how this consolidation period will resolve.
Obviously the first part of this new timing cycle is turning out to be a consolidation pattern, and lately it's been doing a great job of hanging up near the highs. But we've learned with this gold pattern that this doesn't count for much, as the break is actually more likely to come to the downside after a triangle pattern. The upside moves tend to go, and go, and keep on going.
The thing about a consolidation pattern, particularly a long one, is that you can make a convincing case for the next trend to come in either direction. So I think we have to fall back on the where gold is in the bigger cycle, and clearly here in 2011 gold has not been responding as it did earlier in the growth pattern. We've seen uprisings in the Middle East, bombing missions in Libya, a massive earthquake in Japan with a nuclear component, and still gold has not been able to respond as it did from 2005 to 2010.
The likely conclusion is the cycle is shifting, but it's undergoing a long, rounded transition period, rather than the straight-up, straight-down end of cycle pattern that is frequently seen. I believe this means the straight-up, straight-down pattern is still in gold's future, but that it will be delayed until gold works through a period of growing confidence that the Fed and the government finally have the economy headed in the right direction.
Is this a day trading
March has been again a blockbuster month
Posted by tims69 on 1st of Apr 2011 at 02:06 pm
Is this a day trading system, if so what are the particulars and there are thousands of day trading systems. Depending on the parameters of each system you could be up or down big for the month