We had originally posted this article here on the afternoon of Tuesday, August 24. With gold now down another $100 today, we urge readers to consider that on the weekly chart, we might be close to a long re-entry point just below 1700!
Today, we’re supplementing our morning report with some material we would ordinarily reserve for our free daytrading forum, but will post here, as it might be of some interest to those keeping track of the barbarous relic’s recent surge.
For background* on the MIDAS TopFinder/BottomFinder (BF) tool, see our post from October 15, 2010, and the follow-up by Andrew Coles here (coincidentally posted on July 5, the low from which the current TF was launched, and when he noted a rally was indeed possible as TF support from the weekly time frame had held).
The termination of the current TopFinder concurrent with the ominous bearish engulfing candlestick today likely signals an end to the current epoch of panic-to-quality induced by the Moody’s downgrade of US debt. This would mean long term Treasury yields have likely troughed as well, at least for the short term [and, yes, they indeed plunged much lower than we had anticipated just prior to the Moody’s news].
As Paul Levine wrote in 1997:
What I’ve just described here may be confusing to those who are new to using TopFinders, since people are usually expecting one indicator that will clearly identify the top. It’s important to understand what a TopFinder does and does not do. It does identify an accelerated uptrend that is all “of a kind”, with price behaving in the same way all the way to its end. The end of a TopFinder does identify the end of this kind of price behavior and the beginning of a consolidation even if it’s only a brief consolidation. And the end of the TopFinder does identify the place beyond which price behavior will be distinctly different. However, in spite of the catchy phrase “Top Finder”, it does not necessarily “find the top”. After the consolidation, price may resume going up, albeit with a different pattern than before the end.
So, the end of the TopFinder on the daily chart does not preclude yet another disaster (Irene?) from setting the markets ablaze, but it does suggest the Moody’s downgrade is now priced in. Indeed, on the weekly time frame (reproduced to conform to Coles’ July presentation), we might see a retracement to its rising TF (currently $1686), with a subsequent price rally to new highs above $2000. At 95% completion and incrementing 1% per week, that would coincide with mid-September.
Finally, on the secular/decadal time frame, as Coles wrote in July:
It may not have escaped the noticed of some readers that the secular degree trend (10 to 25 years) in gold from the 2001 bottom also appears to be accelerating. Indeed, as in Chart 7, we have the same setup for a TF (red), since S1 (green) displaced immediately from the trend when it was launched from the March 2001 bottom. This enormous secular-degree TF is 56.9% done, suggesting – on an extrapolation of a price/time reading from the cumulative volume prediction – that we could see another decade of rising gold prices.
Conclusion: sell your bullion? No! But, be wary of leveraged long gold exposure here.
*The recent Bloomberg Press publication by Coles and Hawkins, MIDAS Technical Analysis, has become the definitive reference book on Paul Levine’s work, incorporating a number of innovations, including some of our work.