Tuesday, August 16, 2011

A Flash from the Past

Click on any chart to ENLARGE
I was doing a little tinkering with gold's updated chart this evening and I noticed something that reminded me of some work I had done in the past.  I poked around a bit and found this weekly chart I posted on April 10th.  It's a chart of silver.
I surmised in my analysis that silver had not quite peaked, based on historical readings of previous silver parabolic moves, and speculated that it had about 3-5 weeks left on the shot clock before exploding.
I was close.
Silver did peak 3 weeks later on April 25 and tossed and turned a few days thereafter before falling from the sky.
My technique was simply to guess that silver would head for the showers once it reached a somewhat predictable level of momentum, and from that I estimated about how long it would take for the True Strength Index (TSI) indicator to reach that level.

But back to gold. 

I was looking at the TSI reading on the weekly chart this evening and it sure seemed rather high. A little more investigating and I had noted all the weekly high TSI readings of every C-wave top since 2001. Then I threw in some 'above the 200 dma' calculations as something of a cross check.
Before we get to the data and the comparisons, I was reminded to observe how each of the ABCD patterns have grown longer and more complex as they have morphed from one to the next. You will notice that the first 5 C-waves had essentially a single extreme momentum move (the C-wave parabolic top, of course).
Beginning with the 6th C-wave (2008), I guess (duh!) because the ABCD patterns are getting larger and longer, a single extreme momentum move is not enough. The 2008 gold parabolic had a midpoint pennant consolidation that actually had substantially more momentum at this midpoint consolidation than at its peak (0.93 vs. 0.65).
So now let's look at our current C-wave. It's interesting to see that it has not had a single momentum peak before the concluding parabolic rocket, as in 2008, but three (0.86, 0.88 and 0.84)!

Our current reading is 0.83 so being optimistic one could hope this is simply momentum peak four and the BIG finale will be coming in the fall as number five. OR being pessimistic, this current peak IS the final peak of the C-wave and a severe profit taking event will surely be next and soon. 
Other notes on the chart: the 2006 ascended 36.2% and 2008 28.0% above the 200 dma. At present we have reached 23.2%.
If we now climb to equal the 2008 height of 28%, gold would top at $1888. Even better, if we now climb to equal the 2006 height of 36.2%, gold would top at $2009.
So, there you have it.
Personally, I think gold is finished for now. That is what the daily and 4- hour TSI tells me. And in my mind, this weekly chart agrees. But who really knows.
Oh hey, this was a first for me: Kitco's Jon Nadler referenced one of my posts in his report yesterday.   "Others were a bit more vocal and they reached for the alarm bell well before Thursday’s initial declines". 

He even says I was ahead of the crowd.  But he doesn't say if I was right. Ha Ha. 

Honestly, I can't blame him.

Good trading to all, and to all, a good-night.


  1. Hi John

    Great work a always, any comment on TNA where we are going.

  2. John,
    Nice report , not sure if i would want to be mentioned in any report Nadler puts out .This guy has been dead wrong about golds price since day one--He is a joke !!!--Also who knows where golds price is going we now live in strange times and world events and domestic ones have never been like this before.I think your partner Gary made the call to get out of gold in the mid-1500's--he sure was wrong on that one.Gold will correct but in these times trying to predict it moving higher or lower is like rolling dice--who knows--just have to go with the trend and at least recently that has been up--
    your friend Bob

  3. John. I see you mentioned Kitco. I used to do business with them with a pool account and I was quite successful. Then about six months ago I thought it was time to add silver to what I already had so put in an order to buy. Their web site does not give a preview to the transaction. I guess I had hit the wrong button and unknowingly ended up selling when I thought I was buying. Several days later in checking my account I discovered the error. Too late. When I called them I was told that if there is any question I should call the next day after the transaction. Of course, I didn't know there was a problem. Why use the internet if you have to call the following day? That cost me a chunk of money. So, until their programmers can come up with a review page to confirm the transaction, I'll take my business elsewhere.

  4. Hi Anon - I've been surprised TNA has not done better than it has recently. The SPX has already retraced up throught the 38.2% level of the waterfall, yet TNA lags at something around 25%. Anyway, I still have my GTC order in for $72.50 and I personally am very optimistic that TNA will reach that over the next few weeks, if not sooner.

    Bob, my friend, Hi - sounds like you have been long gold from about $700 and making a killing going with the trend. You can put a ruler on the C-wave - it has been a straight line trend for 2 and one half years now - and you are right, trying to trade the wiggles and giggles is like rolling the dice.

    If/when gold does finally take out this C-wave's trend line, that will be it though. Tonight that number looks like about $1470 $300 lower).

    Gold has bounced off that line about 5 times in the past 30 months - most recently January 2011. It seems to like to test that line when price gets too stretched above it - like now.

  5. John,
    Re your response on the previous post:

    You make some good points in favor of a decline, namely the SOS numbers. I looked historically for SLV's SOS numbers before the May crash and only saw a handful days where it was on the list, and there was never a massive number. However, the number gradually increased as D-Day approached:

    4/14: -4.86
    4/18 -15.39
    4/20 -24.43
    4/25 -41.63
    4/28 -36.21

    Compare this with GLD's SOS numbers from this month:

    8/2 -56.41
    8/5 -19.38
    8/8 -76.86
    8/9 -71.42
    8/10 -80.32
    8/16 -58.48

    The other thing I forgot about is the divergence of the miners. Seems they would need to break out in order to confirm gold's breakout.

  6. I went back and read your silver post pre-collapse and it looked like a great call to me. So if you think this is a repeat of 2006, then isn't it possible gold keeps going up, the broken silver parabola recovers and makes new highs shortly before it all implodes?

  7. Hi: John
    Great post , Great work, when you have time can you take a look at SLV,
    Near term ?

    Happy trading

  8. Flaunt - thanks for sharing the interesting Selling on Strength data. Getting those numbers always takes a lot of time, doesn't it? I've done my share of this kind of thing and always appreciate when someone else does the work and makes it look easy.

    The breakout of the miners would help, indeed. And they are really close to that right now. HUI closed yesterday at 573 and just 15 points higher - around 588 - would look compelling.

    But I am reminded of 2008 when, after seemingly recovering from the sharply corrective D-wave, with gold in fact making a bullish inverted head and shoulders pattern, the miners actually made a compelling break out on July 17 and 18 (2008).

    To anyone looking at the chart from across the room this looked about as good as it gets.

    But immediately thereafter, price movement in both gold and the miners was DISASTEROUS.

    So I looked up the SOS (Selling on Strength) data for the time period preceding mid-July 2008. Would the so-called 'smart money' or 'big money' have been preparing for this gigantic fake-out or would we find them completely caught off guard?

    GLD SOS in the 3 weeks preceding 7/17/2008:

    6/24 -44.6
    6/26 -33.6
    6/27 -43.0
    7/02 - 7.0
    7/09 -25.8
    7/11 -33.1
    7/14 -28.3
    7/15 - 9.5

    This data suggests to me that 'smart money' was not fooled at all by what appeared to be the *obvious direction* of gold and the miners.

    The conclusion I take from this is to treat any short term break out of either the miners or gold, in the future, with great skepticism.

  9. Flaunt - the 2006 scenario, where silver makes a parabolic top, drops back while gold continues to climb, then makes a comeback - peaking a second time as gold finally peaks?

    Is this a possibility in 2011?

    I will say yes, and for this reason: the three preceding silver parabolic moves peaked virtually the same day as the top of gold's C-wave top.

    April 1, 2004 Gold
    April 2, 2004 Silver

    May 11, 2006 Gold
    May 11, 2006 Silver

    March 17, 2008 Gold
    March 17, 2008 Silver

    Just thinking in terms of 'probabilities', is 2011 more likely to make it 3/4 or 4/4? And that is why I have thought this could well turn out as 2006.

  10. Hi Norman - SLV made a bullish trend line break BUY signal on Monday with a ZERO crossover. Yesterday, Tuesday, the TSI continued higher. It looks to me that silver wants to go higher now. That's the best I can tell you.

  11. John, thanks for the great information.

    I'm not confident enough yet to place a bet one way or another, but I wouldn't be surprised if gold saw $2000 in the near term. While sentiment is high, my subjective observation is that it doesn't seem as euphoric as when silver was making its move earlier in the year. That might just be because it's gold, but I'm not sure. What is interesting, is that if you look at google trends for "buy silver" and compare it to "buy gold," the latter is making a parabolic move just like the former did shortly before the price peaked:


  12. Norman,
    I agree with John's comment about Silver looking good froma TSI perspective (room to grow) however one must also look at what typically drives silver...and that is gold. When Gold goes up...silver goes up, when gold goes down, silver goes down. That being said, if you look at the gold charts, one should have reason to believe that silver could pivot regardless of the way TSI looks.
    Just my thoughts

  13. Hey John ,

    Any protective stops on TNA ?

    Where do you see TNA two weeks from now?

  14. If you don't mind my asking John, how is your TNA trade doing? Are you just going to hold it come what may? I have some TNA options but cut some of them loose as the rally failed to live up to my expectations. What makes you confident in a near-term target of 72?

    I'm not even sure about an imminent QE3 anymore. I was thinking (hoping) that there would be strong hints at Jackson Hole but it seems the tides are turning against that possibility. Without it, I think the markets are going to plunge to new lows. It wouldn't surprise me if they plunge in advance of the meeting, given Fisher's statement today.

  15. Re: QE3 Something to think about. Next Friday is GDP announcment day. I find it intersting that Ben is scheduled to speak a couple of hours AFTER they release GDP information. Planned or Coincidence? I did go back and look at GDP announcment days in the past only to find that Ben didn't speak on that day. Something to think about.

  16. John,
    Sure would love to get a weekend update on this particular post. Gold hit $1881 Thursday, overnight. Is this close enough to the 2008 gold top, 28%, 1888 call??

    I'll be real interested to see what happens when Asia opens Sunday evening.

  17. ckpc. im on pins and needles also.