Friday, January 4, 2013

Gold: So Far, So Good

Things have gotten a bit more complicated since I wrote my December 19th post 'Where's the Fire?', but I continue to ask the same rhetorical question and am somewhat amazed at the 'freak out' all around me. Yes, things have been strange lately with the gold and dollar behaviors but I don't think without a decent explanation which I will offer in this post.

One of the things I have quietly been puzzled by is the lack of a credible trend line break of gold's intermediate cycle begun on May 16, 2012. I have been unable to find a single intermediate cycle that did not have a trend line break - and I have looked at all 31 previous intermediate cycles. So, for starters, I have been waiting to see if this event would occur and as of a few hours ago, it finally did.

Click on any chart to ENLARGE
I chose 6/28 and 7/12, along with the origination low of 5/16, to draw the intermediate cycle trend line. There were conflicting lows to chose from, as I am sure you will note, but my choice gave me two lows, not one, in alignment with the 5/16 low.....and that seemed as good an argument as any for my choice.

Some of the curious items: 

1. This intermediate cycle has, as of today, measured 165 days. Until now, the longest intermediate cycles occurred in the 2009 C-wave and were 148, 131 and 120 days. In 2007 the C-wave leading up to the 2008 parabolic included a pair of intermediate cycles that measured 128 and 127 days. The longest intermediate cycle in a D-wave was in 2008/09 at  123 days. 

(See my December 28th article 'The Microscope on Gold's ABCD Pattern and Intermediate Cycles' for details).

2. This intermediate cycle began with a daily cycle that peaked on Day 15 and concluded on Day 31 - the definition of a left translated cycle. No other C-wave has begun with a left translated daily cycle.

3. This intermediate cycle has included 7 daily cycles nested within its massive structure. No previous intermediate cycle has used more than 6 daily cycles. 

4. Every C-wave intermediate cycle top was followed by a left translated daily cycle with a couple of exceptions (3/2/2006 and 6/6/2011). Not this one. This intermediate C-wave cycle topped on 10/5/2012 and the following daily cycle topped on 11/23/12 and was right translated.

Turning to a 60 minute chart for a closer look at the trend line break of the intermediate cycle and the trend line break that just missed on December 20th, we have this chart (below).

There has been some speculation that the U.S. Dollar Index is presently suffering from an aborted intermediate cycle that was expected to be bearishly left translated but has now got a whole new attitude.

I'll admit that it is a screwy situation, that is for sure.

But this is what I see.

The dollar began a new intermediate cycle on February 29, 2012. It peaked on July 24 (day 61) and bottomed on September 14 (day 99).

This was followed by a shorter intermediate cycle that peaked on November 16 (day 45 - /DX 81.515) and bottomed on December 19 (day 68).

This shorter IC peaked much lower than the previous IC - thus the lower highs concept of a change in trend direction. BUT, this IC was also bullishly right translated and did NOT make a lower intermediate cycle low than the previous IC. We would expect (if not demand) that this IC would make not only a lower high but also a lower low. This means to me that my IC explanation is suspect.

You understand why I characterize this situation as screwy, right?

Holding on to the concept that cycles break their trend lines before moving on to a new cycle, you will note the purple dashed lines I have drawn on the chart above. Clearly, the IC trendline begun on September 15 has been broken.

Anyway, I offer another possible interpretation: this IC did not conclude early on day 68, but is still ongoing. If it should bottom below the pricepoint where I have put the '99' (/DX 78.725) and do so after the 90th day (defining a left translated IC - as expected) then everybody would probably be real happy. Oh, lest I would also be required that the 81.515 current high for the IC not be surpassed to the upside.

I see that the dollar is presently stuck at the precise price level of the left shoulder top of the head and shoulder's pattern there has been so much talk about. Perhaps traders are a bit dumbfounded about what comes next as the rest of us?

Well, I say, hang in there. For the FED to be buying 80% of the US Govt debt (because there are no other buyers, obviously) and then infer that they will stop this practice sometime before the end of 2013 is the idiocy of all statements I could ever imagine. They are dreaming and hope you and I believe the dream - while they have transferred all the debt of the private sector's mistakes onto us, the public taxpayers. Ha ha. I say bullshit.

And besides, it's still a bull market!



  1. thanks john. I am waithing to buy the 1600/1580 in about 2 weeks. There are some tech guys following a chanell down with a price target for these levels.
    where do you think we are on the current daily cycle?
    jeff the flea

  2. Fantastic insight as usual John. Thank you for clarifying the IC trend-line break as well!

  3. Thanks Ross. I appreciate that you took the time to write this to me.

    Jeff - that's interesting stuff. I'm looking at that, well, I guess it's a
    falling wedge pattern. There are definitely some possibilities with this
    assessment and here is what would have to happen, IMO.

    By my count, today was Day 18 of the Daily Cycle. I would think there are
    not many (if any) more days left in this cycle. In order for any additional
    days to definitely 'count' as being a part of this daily cycle, price would
    have to rather quickly make a lower low than today's. It's $30+ lower from here,
    but of course, possible.

    As I presume this idea would play out as a true falling wedge, price, should
    it return to today's low should then begin to moderate - gently begin to flatten
    as sellers reveal they are exhausted. I also presume that price would stay perfectly
    within the bounds of the two line comprising the falling wedge.

    Well, now that I think about all this, I'd say there ain't a chance in hell. Certainly
    not at a price level of 1600/1580. The lower trend line does not even reach $1600 until
    Valentine's Day. Today is January 4th. Trust me, this situation is not going to drag
    out....falling....falling....falling for another 5-6 WEEKS. No way.

    I can see $1640-1650 being retested. But not $1600 inside this falling wedge pattern.
    Really, it's, well I should not say impossible, but *highly unlikely* is probably the
    best way to otherwise say that.

    I hope these thoughts help you make a good decision Jeff. Thanks for your interesting question!

  4. John,

    Pure speculation on my side and I admit I don't understand what those criminal minds are thinking but, just for fun, lets guess.
    It is not a secret that 'they' are planning to move to 100% electronic financial system. Two EU countries already declared that paying over certain amount can be done only electronically. Also there are already some resistance. I Sweden one bank goes cash only and they are getting a lot of new customers.

    'They' can try to force us and risk revolt or they can create world financial crisis, crash everything and then promise new world currency electronic only but backed by gold (yeah right)

    To wrap it up, stopping to print may be in their plan once it gets really bad and once they are ready to introduce world currency and probably world government.

  5. Great article, John. But I think the number 2 point is extremely unlikely in a C wave. I still believe that the May bottom, which was only pennies off of the December bottom, was the final bottom of the D wave and the C wave has yet to begin. If that is true, the major trend lines make sense, the momentum indicators make sense, and no. 2 above does not apply as we are still in a B wave.

    I don't really think this issue matters right now, but it might when we're looking for a top to the C wave.

    Thanks for sharing your work.


  6. Anon - you raise an interesting question. That is, if the Central Banks were to cease
    printing money what would motivate them, what would happen and who would benefit?

    For the fun of it, I'll take a stab at the ideas.

    As best I can tell, this boom to bust cycle in human civilation is rather predictable.
    Humans tend, over many decades, to increasingly try to get something for nothing. Humans
    expand their inventions and rules for credit until, on a very grand scale, it causes their
    economy to explode. It is their impossible notion that more debt can solve their debt problem
    that eventually leads to this outcome.

    When it reaches an extreme, the laws of nature force the obvious solution which is that all
    debt is erased. Another way to say this is that insolvency leads to bankruptcy. In bankruptcy,
    all debts are indeed erased. On the massive scale we contemplate, it's also called a Depression.

    Just how electronic banking technology and gold and currency leadership and the role of Central
    Banks will be involved in this Depression I have no idea.

    My hunch is that those countries that have the right mix of assets after the debts are erased
    will have the upper hand. One might easily think this to include gold reserves. Or the simple
    raw material of farmable land that will feed the people of the world. Or perhaps the military
    superiority to devastate the nations that have gold or the land. And on and on. I don't know.

    But however and whenever it comes about I am quite sure the nations affected, if not the entire
    world itself, will not have *any debt* left to worry about. And they will not have the standard
    of life they now enjoy.

  7. Joe - I appreciate your writing and your sincere desire to both explain and understand the technical explanations for gold's behavior. And welcome you to a complicated puzzle that is anything but simple to master, if mastery is even possible.

    I will entertain your assertion that a few pennies do not matter and therefore May 2012 marked the D-wave bottom, not the Dec 2011 low.

    And I will also entertain your assertion that the June 6 daily cycle high that resulted in a left translated first daily cycle could never have happened to begin a brand new C-wave.

    But Joe, please understand I am persuaded by facts and reasoning and not by general beliefs. If you have the facts and reasoning to substantiate your beliefs, please share them. I will share with you my facts and reasoning and perhaps we can end up on the same page. Fair enough?

  8. Super fair, John. All I have to offer has been submitted in previous posts. Trend lines, momentum, volume indicators turn in May. The recent plunge feels looks a lot more like an intermediate leg down than a correction in a move up - just ask the people on Gary's site what this looks like. I think there is so much panic because they expected a C wave advance instead of a dramatic decline. If they understood that this was a B to be followed by a C, many would be more patient. Even though I may be wrong about this call, I am certain that in human affairs there can be no truly unbendable rules in locating cycle turning points. We folk just aren't built that way. By the way, I did not recognize that we MIGHT still be in a B wave decline until the decline had progressed a long, long way. I'm not claiming to be smarter than you or Gary. I'm just trying to learn.

    Thanks for your help.


  9. Joe - join the crowd, I'm just trying to learn too, be sure of that.
    I do all this analysis stuff because I find it fascinating - like looking
    for buried treasure, or something. And the main reason it is endlessly
    fascinating to me, I suppose, is because it is very similar to what I have
    studied passionately all my life - classical music.

    In music there is the emotional aspect of appreciating beauty, being emotionally
    touched and even momentarily changed by the listening or performing experience.

    But music always has a correct pitch and an incorrect pitch ('wrong note'). It
    always has structure first made up of melodies or themes that are musically spoken
    in phrases then developed with contrasting instrument sounds, rhythms, changes in
    tempo and dynamics, and brought to a conclusion often using the material similar
    to the composition's beginning.

    In the symphonies from the time of Mozart, for instance, the sonata allegro form was
    used. First melody played, then second melody, then a repeat of that first section.
    Then a development section that changes both melodies in creative ways, often intermixing
    one with the other or surprising with the introduction of a new third melody, and then
    concluding with the final 'coda' section.

    Joe, these forms in Classical music are all very defined. A melody of 8 measures followed
    by a repeat then a second melody of 8 measures with repeat then .... then .....

    Gold is the same way. It has an A section followed by B, and so on. Inside each of these
    ABCD sections are intermediate (sometimes called weekly) cycles and inside of the
    intermediate cycles are even smaller cycles counted not in weeks, but in days.

    Music has hard and fast rules. A 'D' major chord is spelled D F# A. If you spell it D F A, its
    wrong. That is the 'D' minor chord. The block dynamics used in the Baroque Era meant that
    the phrase was to be played loud the first time and soft the second time when it is repeated.
    To not do so was wrong and revealed a musician's lack of sophistication for performing
    the music as intended by the composer.

    Likewise, a cycle top is the highest intra day price within a cycle. The cycle lows are the beginning
    intraday low price of the cycle's first and final day. That is a cycle. I did not get to tell Mozart
    what structural form to use when he composed nor did I get to tell the guy who conceived of cycles
    in the stock market the rules he should use. As I have written before, the rules are the rules.

    The gold cycles have a few other rules (actually, quite a few other rules). Some of these include that
    an A-wave never surpasses the height of the D-wave it follows. Another is that an A-wave never concludes lower
    than the D-wave it follows. If this is a bullish market cycle, as is true of gold, then the next rule is
    that the intermediate cycle tops of the C-wave must have the bullish characteristic of higher highs and
    higher lows. This is the very definition of a bull market. ie. same for S+P500, and so on.

    Joe, hold onto the ropes. Do you see the right cross I am about to throw at your jaw? (just kidding,
    of course). I see you ducking, just in case, which is smart.

    Look at the price points at the:
    1. top of the past D-wave
    2. bottom of the past D-wave (A-wave beginning)
    3. top of the A-wave (B-wave beginning)
    4. bottom of the B-wave(C-wave berginning)
    5. top of the C-wave first intermediate cycle

    and tell me what you have figured out.


  10. The other thing I will add, besides this wave peak/trough consideration, is that the current
    C-wave has only retraced 61.8% or thereabouts. AND, from beginning to peak, this first
    intermediate cycle gained something like 17%. Then, if you'll take a closer look at that boring
    chart I made a few articles ago about the ABCD wave pattern and Intermediate Cycles (last chart)
    you can decide with FACTS if you think the 61% retracement so far and the 17% gain from bottom
    to top is reasonable - in comparison to all of gold secular bull market history.

    If I had to guess, people's emotional angst is partially explained because this has been the longest
    intermediate cycle of the bull market. The actual metrics are excellent and entirely reasonable
    but the TIME that has been burning people's emotional energy has taken quite a toll.

    As Gary used to remind me, nobody said it was easy to ride the bull. And he was right!

  11. Whose Gary? ;) John, which post shows all the IC trend-line breaks to that point...I can't seem to find it!? Also, didn't you do a post showing how all B-waves break through the previous C-wave up-trend or something similar...can't seem to find that either!?

  12. Hi Ross - Gary is a friend of mine, partner and has a website or two.

    I'm pretty sure I did not do a post showing all 32 intermediate cycle trend line breaks. I have given the dates for the beginning and ending of all these cycles and from there you should be able to draw their trendlines, as interested.

    I'm not sure about your B-wave question/idea. I do somewhat recall making charts to show how each C-wave long term trend line was broken. And again, the dates are in that 4th chart on the Intermediate Cycles article - would not take you put a few minutes to have a look for yourself. Honestly Ross, the B-wave part of your thought puzzles me, unfortunately.

  13. Hi John, I didn't realise you hadn't done a post on the 32 IC trend-line breaks - I thought I had missed it - I did as you said and used the dates given.

    My current understanding is the B-wave low breaks the C-wave trend-line? I wasn't sure it was the B-wave low/C-wave begin as opposed to the D-wave low you started the trend-line from until you wrote the above reply. This makes more sense now as the 2008 D-wave low created a useless trend-line. This would have helped one know in advance that the Dec '11 low was not the real C-wave beginning? Thank you.

  14. I just realised the C-wave trend-line in 2008 was actually broken by the D-wave and not the B-wave, so I guess whichever one breaks it doesn't really matter.

  15. Hi John,

    Another great post! Thanks!

    I too have thought about the B wave possibility, mainly because the May low was so close in price to the December, 2011, low that you could say it was essentially a double bottom.

    I like your analogy of gold's price movements to musical form. However, the gold market in the US has been freely traded for only a few decades, so I would have to ask the question: Do we have enough data to make inferences about its form? Is the sample of A, B, C, and D waves large enough for us to consider it statistically significant? If so, can we come up with a set of rules that always apply to all A waves, all B waves, etc.? And finally, there are some good analysts out there who don't buy into the ABCD wave concept at all.

    But if we accept that these wave patterns exist in the gold market, and also accept the possibility that the low gold put in on Friday was the end of the B wave, instead of the end of the first intermediate cycle of a new C wave, then points #2 and #4 in your "curious items" list would no longer apply. (But that still leaves points #1 and #3 to wonder about!)

  16. Ross - I am going to presume that we are still not on the same page. And, that said,
    it is my fault that may be the case because I have not done a good enough job of defining
    how to draw these trend lines.

    The trend line is drawn from the low of the 1st day of a new ABC or D-wave to an intra day
    low days or maybe even weeks thereafter which captures the trend.

    It is reasonably expected that the trend line is not virtually flat, as that would not define
    a 'trend'. It would instead define 'no trend'.

    As an example, the trend line of the previous 'A-wave' could be drawn from the low 12/29 to the
    low of 1/25 - creating an incredibly steep trend line characteristic of an A-wave, or drawn from
    the low of 12/29 to the low of 2/16. I would tend to favor the first option as it is a trend line
    that is broken before the B-wave began.

    The B-wave concluding low is the C-wave beginning. The B-wave initial high is the A-wave conclusion.

  17. Hi PimaCanyon - well, am I allowed to make a mistake once in a while, if I admit it?

    I think I am wrong in counting the 7/1 low to 9/26 low as an intermediate cycle. That time period was barely 3 months and not realistic - particularly in light of what followed.

    So, correcting myself, that intermediate cycle was 7/1 to 12/29. 6 months is entirely more reasonable as the average intermediate cycle is 94 days or, slightly beyond 4.5 months.

    Also, and incredibly, the fact that the 9/26 low was taken out on 12/29 with a lower low gives strength to this argument.

    FWIW, this leaves us with a C-wave top that itself defined its intermediate cycle as left translated. The only other C-wave top that defined a left translated intermediate cycle top was that curious situation with the double top in 2004 (appropriately occurring on April 1).

    So I am thinking this C-wave was NOT followed by two left translated intermediate cycles. CORRECTION: Point #4 above

    Point #2 above is true, as best I can tell, but perhaps it should have been stated in a different light. This C-wave began with a left translated daily cycle. No other intermediate cycle in the entire bull has started this for the first two infantile A-waves of 2001 and 2002. I'm uncomfortable with leaving people with the notion that this left translation issue (of a single day) is significant to C-waves. IT IS SIGNIFICANT AND PECULIAR TO ALL INTERMEDIATE CYCLE BEGINNINGS - WHETHER ABC or D.

    I am not sure I am qualified to assess statistical significance - perhaps someone else knows how to argue that.

    Your second point regarding the rules for each wave: this is already already known and defined. Unless reasearch can show that the rules are in error I don't think correction or adding new rules is needed.

  18. John, Your replies are most interesting. I reply again not to try to win the debate but to continue exploring possibilities to learn how to interpret future market moves.

    I surely understand the physics of music is immutable. But I must maintain that anything which attempts to describe the products of human behavior must be viewed more as guidelines than immutable rules.

    You urge me to rely on facts. I do seek to rely on facts, but I think it is possible to be stuck looking at individual trees and miss the whole of the forest. Yes, the May low is pennies higher than the December low and your retracement figures are correct. But when you step back and look at the chart, the forest becomes visible. I see that your C wave has only retraced the very same ground as your A wave retraced. From December to May the daily chart looks very much like a single huge correction pattern. It also occurs to me that we could both be wrong. If the present decline continues down to 1500 (or within a few points of 1500), the appearance of the forest will convince me that the A wave has yet to occur. Now, I doubt this will happen, but I have been surprised by the market before, and it will be the appearance of the chart that drives my interpretation.

    Your facts are the critically important facts of accountants. Usually, they are the best data points, but as we all know from listening to politicians debate, the numbers generated by accountants can deceive as well as enlighten. I think the most important "fact" is the pattern of the chart itself, and the individual data points must be interpreted in light of that pattern.

    Thanks for all the time you've given me on this issue. I promise not to torment you and your other readers about this question again until I see something in the chart that appears to confirm whether we have been in the C wave or the B wave or are still stuck in the D wave. (It occurs to me that I may never be able to prove whether we have been in the C or B wave because in the end there will simply be more or fewer cycles in the C wave. But if the decline continues far enough, it could prove (at least to me) that we remain in the D wave.)

    For now, I think that we are either in the B wave and about to commence the C wave or you are correct, and we are merely in a dramatic decline in the C wave. Either way, I'm looking for an upside move to soon begin. I hope not to find out that we are still stuck in the D wave!



  19. Joe - I most definitely agree that there is no point in anyone thinking they have either
    won or lost an argument. I will say that the sonata allegro form composers were obliged to use
    in the Classical period did indeed have immutable rules, as were the performance interpretation
    requirements of music from the Baroque period. These immutable rules had nothing to do with the
    physics of music but had everything to do with the rules that man imposed upon himself.

    In the Medieval period music was not allowed to use the interval of a third. That is why music
    from that period sounds so utterly empty, hallow and reverently holy. This entirely changed after
    1600 but then new rules were made. Bach could not write music that contained a single parallel 5th
    or octave. If you can find one example of this error in the music of the Baroque era I would be astounded.

    In short, I know that music had immutable rules in different periods of mankind's history and these
    rules did not pertain to the physics of sound.

    Your third paragraph about the forest and the trees is interesting and, it is agree that neither of us
    really knows at this point, for sure, which one of us is looking at the forest and which at the trees.
    But I'll offer you a new twist, something I have not written about previously.

    It is quite common, for whatever 'reason' who cares, that price movement, during either a sharp up or
    down leg, will take a pause....a breather. And during this period a pennant is formed. It reflects the
    balancing of bulls with bears, a surrender to standstill and complete uncertainty. Then, should price
    break out in the direction of a continuation, price almost always does not stop moving in that direction
    until it at least measures the distance from the beginning of the pattern to the midpoint consolidation

    That said, my personal concept of what gold is doing is that it is making a gigantic pennant pattern.
    The center of the pennant is around $1700. We began the pattern in Feb 2001 at $255, so the first upleg
    was $1450 or so. That also projects the next serious resting point as ($1700 + $1450) $3150. In my view,
    it would not be surprising that this particular point in time would behave differently than the initial
    upleg or the concluding upleg to follow. My view is that gold is going to follow it's rules at this time,
    but likely do so in a way that seems unusual.....difficult to explain in view of both the forest and the
    trees. And this is precisely the result of being in this 'different' pennant creation phase as opposed to
    the more common 'upleg' phase.

    Anyway, my ideas and everyone elses ideas are speculations. I'm sure we both wish we had a crystal ball
    that worked. But as I try to remind, anything can happen. Everything I have ever written could easily
    prove to have been pure nonsense. I hope it is not so, but I have no control over that, do I? ha ha

    Thanks Joe for *your* taking the time to expose your ideas and mine to the fresh air. Hopefully it will help
    others in some small way that we could never have imagined. And that does happen once in a while, trust me.

  20. Thanks for the reply, John. I better understand the music point, and I really believe your pennant description is right on.