An Astoundingly Beautiful Call for Gold and the S & P 500
Da Rock asks his better spoken associate, Dr. Ian Stein ta examines anna comments onna da gold price anna da S & P 500 Spring rally, taday.
Thanks Rocky. It is always a pleasure to get a chance to get away from my time and space musings to work on another puzzle, the stock market.
As you pointed out to me, there is a very interesting article providing some very cogent points about the actions of the gold price recently. For readers the article is available here: http://www.321gold.com.... Essentially the article, by Eddy Gofsky looks at recent chart behaviour of the gold price, and says that the gold price finished a right shoulder dip of a reverse “head and shoulders” bottom on April 19, 2009 at $865USD. He confirms his observations with more than one charting methodology. Then he concludes that Gold is set up for a strong rally.
So, for interest sake, I will reproduce the “head and shoulders” bottom here on the chart in Figure 1 following:
Weekly Chart of the Gold Price for the Last 3 Years
Figure 1: Weekly Chart of the Gold Price with the labelled analysis of the “head and shoulders” bottom. This bottom is a strong trend reversal that should send the Gold price right through the neckline of this formation and beyond. The Chart is indicating the changed perception of Gold since the Gold Price bottom was set on Oct 24, 2008.
As shown on Figure 1 above, the inverted “head and shoulders” pattern is quite apparent when highlighted. Also look at the symmetry shown, the time distance from the left shoulder dip to the head is about six months. Then the time from the head to the right shoulder dip is also about six months.
The neckline of this bottoming formation just happens to sit on the all important $1000 USD level for the Gold Price. Because of this beautiful symmetry, one can from examining the chart approximate of the timing for the Gold price to penetrate the neckline. The $1007 USD neckline price was set February 20th, 2009. The right shoulder price of $859 USD was set on April 17th, 2009, a time stretch of about 8 weeks. If we add another 8 weeks then we can expect the Gold price to approach the neckline price of $1000 USD on about June 15th, 2009.
In the classical stock charting book “Technical Analysis of Stock Trends” by Edwards, Magee and Bassetti they report that “It (volume) must be present on the penetration of the neckline, else the breakout is not to be relied upon as a decisive confirmation.” Therefore, we should look for a high volume to accompany the Gold price penetrating the $1000 USD barrier. Should that happen, then we have a genuine breakout to the upside and the start of a new uptrend for the Gold price.
Now as for the general US stock market, we’ll examine the trend for the S & P 500 as a proxy. The chart for the S & P 500 is shown below in Figure 2 following:
Weekly Chart of the S & P 500 for the Last 3 Years
Figure 2: Weekly Chart of the S & P 500 Index with labelled analysis of the “head and shoulders” bottom being formed. Note the beautiful symmetry of the funnel shaped head, with the equal decline from the neckline and the subsequent rise back to the neckline.
As you examine the above chart of the S & P 500 above, what jumps right out at you is the point at the bottom of the graph at 666 (never mind the significance for the “beast” or “Nero” that is a topic for another day). Look at the pure symmetry of the chart from the beginning of 2009 to the March 6th date on which this low was recorded. Examine the almost ideal mirror image from the low in March, to where we are now at on May 15th, 2009. The stock index forms a perfectly proportioned funnel shape for the bottom. The obvious conclusion that jumps right out at you is … “This is the bottom too,” it is too symmetrical to be a mere coincidence. It is an inverted “head and shoulders” bottom forming.
For timing, the head formation started on January 6th, 2009 when the S&P 500 recorded a 943 for the left neckline. The head low was recorded on March 6th, 2009. On May 8th the S&P 500 recorded a 930 for the right neckline. Counting from January 6th to March 6th we get 59 days or about 42 trading days. From March 6th to May 8th is 63 days or about 43 trading days. This is remarkable, considering that the Index is a composite of 500 companies, each one being acted upon hundreds or thousands of investors. The symmetry and arithmetic of this bottom is truly astounding.
Again from the beautiful symmetry, and if this is truly a “head and shoulders” bottom formation, then one can estimate the timing for the formation of the right shoulder. The timing of the left shoulder low was set on November 20th 2008. The neckline was reached six weeks later on January 6th, 2009. Adding six weeks to the May 8th 2008 neckline, we should expect a right shoulder low on about June 19th , 2009 for the S & P 500. This low will mark the low for the right shoulder of the inverted “head and shoulders” formation that should cause a major trend reversal to the upside. This should be the start of a new Bull Market.
So, there you have it Rocky……&... beautiful symmetry shown allows one to forecast…&h... Gold price breakout to the upside over $1000 USD on or about June 15th 2009, to be followed by a start of a general Bull Market on or about June 19th, 2009.