Friday, January 6, 2012

Sold DUST @ $37.76 - Gold Leaves a New Clue

Click on any chart to ENLARGE
With just minutes left on today's week concluding session I took a look at my position in Direxion Gold Miners Bear 3X ETF (DUST) and hit the sell button. Nothing in particular was wrong with the chart technically, I just felt like taking my marbles and going home for the weekend.

While studying the weekly charts of the World Gold Index (XGLD) and looking at the placement of each ABCD wave, I began to notice something I had not seen before. Ever.

I'll show you what caught my eye with the following three charts of the Gold Index. My training/tinkering with gold's cycles, whether they be the four hour, daily or weekly (intermediate) variety, has included an appreciation for the violation of a cycle's price trend line before its conclusion. This trend line break is not a certainty I guess, but a virtual certainty.

So I got to wondering if the ABCD pattern of gold's secular bull market also exhibited this characteristic. That is, has price in every instance broken the trend line of the ABCD pattern before beginning a new ABCD pattern?

Our first weekly chart is the Gold Index from 2002 - 2005. As you can see, there were three complete ABCD patterns in this time frame and indeed, the trend line of each was broken by price before beginning a new ABCD pattern.

The 2003 pattern saw price come down and touch the trend line during the D-wave. But as we will see in other examples, apparently just touching the trend line is not the characteristic of a completed ABCD pattern. 

Our second chart looks at the late 2004 C-wave top and continues with the 2006 and 2008 specimens. The introductory price movement of the 2006 example was so flat there was virtually no trend line. That is, the A-wave bottom ($410.10) and C-wave bottom ($413.50) were unable to give an accounting of the ABCD pattern's price trend. 

An up sloping price trend line did finally emerge and surprise, surprise ..... it was finally violated by the 2006 D-wave the very week that defined the beginning of the 2008 ABCD pattern.

Also, the late 2004 example, like the 2003 ABCD, found price reach the up ward trend line, but it was not until this trend line was breached a couple of weeks later that the D-wave concluded and an A-wave begun anew.

Finally, let's have a look at the most recent ABCD activities. 

On the far left of the chart is the conclusion of the 2008 example - and again note that price tagged the trend line near the conclusion of the D-wave, but it was not until the trend line was clearly penetrated that this D-wave came, mercifully, to a final conclusion. 

And on the far right of the chart is the parabolic top of 2011 and we note that the trend line of this ABCD pattern has already been touched by price - but not penetrated.....yet

My TSI Trading Record has been updated.


  1. Do you mean sold dust at 37.76? Great insight on the wave patterns. I'm still holding, waiting for my chance to get back into NUGT. Like you I think there will be on last smash down before gold starts going up again.

  2. Mike - yeah, $47.76 I wish. lol Thanks for the timely correction. No D-wave has corrected any less than 54% of its preceding C-wave (2006) and the rest were much much more severe. As we are at just 38.2% right now, I just have a difficult time believing the correction is "over". And my little trend line clue (discovery) may give us a sensible way to be prepared for what it will look like when it gets here.

  3. thanks for your analysis Mr. Townsend..will be interesting to see what happens with it.

  4. Very informative work in addition to the previous historical ABCD waves

  5. Hi John, Just a note to say I really appreciate your posts. You have given me an understanding of ABCD waves, daily and weekly cycles. Are you a maths teacher? I wish I'd had a teacher who could explain things as well as you do when I was at school. Trevor, UK.

  6. John--

    I just wanted to add to all the well-deserved praise for your fantastic work. You come up with a lot of GREAT insights, and are very generous in sharing them.

    All the best to you!

  7. Compliments and encouragement are always appreciated!

    Trevor, your guess on what I teach is actually quite close, as math aptitude is strongly correlated to my subject and I indeed love math. But truth be told, my primary training is in classical violin performance and I have taught orchestra for the past 30 years to children in the 4th - 6th grades. The analytical sensitivity for nuance, form, detail, emotion and variation, along with the lengthy experience of communicating ideas in a simple childlike language, can begin to explain both my particular skill set and my general point of view that information is to be shared freely, as opposed to competitively.

    Anyway, I greatly enjoy helping others and always feel that their success is my reward. So, go get 'em tiger!

  8. john, you are an amazing guy.... i am true fan of yours... god bless you... -Rags

  9. Intersting analysis, thanks for sharing as always!