Thursday, June 21, 2012

Gold's Secular Bull: 200 dma and B-wave Bottoms

Last evening I was looking at all my various indicator concoctions and started to wonder if perhaps gold still has not made its final D-wave bottom. The indicators last evening suggested to me that, as crazy as this sounds, a D-wave bottom could still possibly be ahead of us. And after today's sky dive of $44 I kinda think maybe my idea is not so crazy after all.

Current thinking is that the D-wave bottom occurred on December 29, 2011 when gold reached an intra-day low of 1523.9. And further, that the B-wave bottom occurred on May 16, 2012 when gold reached an intra-day low of 1526.7 (we will examine this on the final chart of this presentation).

Anyway, should gold reach an intra-day price of lower than 1523.9 anytime soon, that would entirely rephase the current understanding. i.e. we would be still in the process of making a D-wave bottom with the explosive A-wave just before us. 

So I got to thinking. Maybe all B-wave bottoms had a common characteristic? And if gold does not currently possess this quality, whatever it is, perhaps we really have not seen the D-wave bottom yet. Hummmm.........

From past research on D-wave bottoms I learned that the retracement of the preceding C-wave was always 50% or greater. I also learned that each C-wave price trend line was finally broken to the downside before a D-wave bottom was finalized.

To my satisfaction I have determined (and posted) that the previous C-wave price trend line has been broken to the downside. So that took care of that oddity.

As for the Fibonacci retracement, gold has only retraced exactly 38.2% of its recent C-wave (April 2009 - September 2011). This does not fit the rest of the puzzle, but likewise, neither does the fact that gold has now produced two left translated intermediate cycles following its most recent C-wave top. All other C-wave tops were followed by a single left translated intermediate cycle.

Hummmm....... Nothing I can do about the two left translated cycles. Is there still a chance the retracement will extend past 38.2% to a 50% retracement - like all the others?

Anyway, the highest price that C-wave tops can reach is somewhat predictable based on the degree to which price has been able to climb above its 200 dma. 

But I've never seen any research on how severely gold has been submersed below its 200 dma at various times, and of special interest at this moment, how low below the 200 dma and how many trading days after gold B-wave bottoms has price remained below the 200 dma?

If the answer to these questions interest you, stick around because I am about to show you. Not only that, but I am going to leave you wondering if perhaps gold has not bottomed just yet, after all.

Throughout the following 5 daily Gold Futures charts (GC) I use the color magenta to help identify the C-wave tops, the color red to locate the D-wave bottoms and the color green to spot the B-wave bottoms. 

After each B-wave bottom, which is defined as the day with the lowest intra-day price in the vacinity, I provide a count of the number of days following that day that gold's price closes below the 200 dma. 

Let's begin our study with a daily chart detailing the 2002 C-wave parabolic top and the B-wave bottom that followed in latter 2002, and continuing into 2003 where we find first a C-wave top then a D-wave bottom, and followed by the 2003 B-wave bottom.

Click on any chart to ENLARGE

The B-wave bottoms in 2002 and 2003 were not followed by a single day where gold's price closed below the 200 dma. 

Fine, so what about the action in 2004 and thereafter? 

(But first let me remind readers that 2004 had not one but two parabolic C-wave tops. The first peaked in early April, the second in early December).

The chart above shows us that both the B-wave bottom in 2004 and the B-wave bottom in 2005 were followed by 2 days in which the price of gold (GC) closed below the 200 dma.

The following chart shows the B-wave bottom in 2006 and we note that the number of days after the B-wave bottom increases to 8 days closing below the 200 dma.

So far the count for the number of days closing under the 200 dma after an intra-day defined B-wave bottom are: 0, 0, 2, 2 and 8. The number of days seems to be increasing but then again, I get the feeling that the number of days is quite small. Good thing we have a little more data to consider.

So now, here is the next B-wave bottom. It followed the 2008 C-wave top and the horrendous 2008 D-wave bottom. If ever the number of days below the 200 dma were to continue to increase, I would bet money this was the year.

Well I'll be darned. The B-wave bottom following the horrific 2008 D-wave that practically blew miners right off the stock exchanges and corrected its C-wave some 89% had how many days below the 200 dma after its bottom? 


You kidding me?


Hummmmmmm............... OK, so now the count is 0, 0 , 2, 2, 8 and 0.

I am starting to wonder if gold likes to set off its C-wave at or just below its 200 dma - kinda like a sprinter who wants to be leaning just barely ahead of the starting line in anticipation of the bang sounded by the starter's gun. It's a fair question, isn't it?

OK, whatever.

So let's now get to the last specimen - the 2012 B-wave bottom / C-wave beginning. 

The magic price here, for the B-wave intra-day low is 1526.7  This price is just barely higher than what most now consider to have been the D-wave bottom of 1523.9 on December 29, 2011. 

Now this chart (above) is curious. Most assume the B-wave bottomed on May 16, 2012 at 1526.7  And from what I know about these things, that appears true

But since that date, gold (GC) has been under the 200 dma for 26 days? Hummmmm....... either this is weird or something is not quite right, and I am not quite sure which it is.

Oh, and I forgot to mention this: the magenta curving line is the 200 dma. If it is rising, it is magenta. But when it has a single bar (day) that it declines, it turns kind of a light pink color. Anyway, we note that the 200 dma has been declining (pink) for the past 6 weeks or so. 

All previous B-wave bottoms rocketed up through a rather flat 200 dma - not a declining one of length and momentum. Hummmmmm....

The red wedge I had drawn on the most recent candles was just something I have been watching - and clearly, today the wedge was violated to the downside.

Also, the straight diagonal magenta line is that C-wave price trend line I identified a while back once I set my chart to log scale.

So is the B-wave in, as believed? How about the D-wave? Heck, they are a matter of just $2.90 apart. 

Current price, as I write this is $1564. Could gold possibly drop another $38 and rephase the B-wave bottom or better yet, drop another $41 and rephase the D-wave bottom?

Good questions. Write me with the answer if you know it, or otherwise any questions you may have. :)

Have a profitable Friday and a relaxing weekend,



  1. John, the momentum indicators on all the gold etf charts, such as gdx, gld and $bpgdm are plunging to the downside. I think the D bottom will soon be exceeded to the down side. See$BPGDM&p=D&b=5&g=0&id=p03942993457


  2. John,

    If the D wave is still ahead of us and we make new lows, would that not mean that an intermediate cycle failure?

    My question then is how many of the past D-waves involved failed intermediate cycles?


    1. JL good question! And here is the answer:

      Seven of the 8 C-wave tops have been followed by an intermediate cycle that was left-translated. The exception: 2002 C-wave top.

      Three of the intermediate cycles following the C-wave top were not only left-translated but failed (early 2004, 2008 and 2012).
      [A 'failed' cycle is one that concludes at a lower price than its beginning].

      One C-wave top was followed by two consecutive left translated intermediate cycles - 2012. All other C-wave tops were followed by
      a single left translated intermediate cycle.

      If gold trades intra-day below 1523.9 sometime rather soon, then we would have had two left translated and both failed intermediate
      cycles following the September 2011 C-wave top. And that would rephase the entire time since September 2011 as the D-wave.

  3. Joseph - nice chart and thanks for sharing it with us. It will not take much in the way of a further decline
    in the price of gold to entirely rephase the location of the D-wave.

    I have done a fair amount of exploration on the usefulness of the $BPGDM indicator. My personal feeling is that
    from a distance it appears helpful, but on closer examination when trying to trade short time frames - say, several
    days per round trip - the indicator is not helpful because it is misleading. Please, let me explain.

    The $BPGDM looks at each of the 16 mining stocks in the HUI mining index, determines which ones are currently on
    a BUY signal using the Point and Figure Chart technique, then divides the number of miners with the BUY signal by the
    total (16) to calculate a percentage. This percentage is what the $BPGDM charts each day.

    It sounds good, but here is the catch. If 14/16 Point and Figure charts are really in bad shape, with only 1/16 giving
    a Point and Figure BUY sign and another that is somewhere between SELL and BUY, the indicator reads 0.0625 (1/16).
    Then let's say that the 14 duds begin to move north. Day after day they rise. What does the $BPGDM tell you then?
    It tells you 0.0625 because none of the stocks have yet made a Point and Figure BUY signal. By the time one of the 14 duds
    yields a Point and Figure BUY sign, 10 others do as well. Now your indicator was at a depressing 0.0625 for days and days
    and days then, rather suddenly, in single day or two, it reads 0.75 (12/16). What good is that? At this point the rally is
    probably good and OVER.

    BTW, the way I figured this out was to carefully study the $BPGDM in 2008. This is generally what happened in 2008 and the
    indicator, for any kind of short term trading and in my personal opinion, was useless. So then I asked myself how this could
    be.....and after giving it some thought I arrived at the explanation I offered in the paragraph above.