"Sharing the Secrets
of Making
the Best Online Trades Worldwide"
Welcome!
BestOnlineTrades
dot com uses stock market technical analysis to highlight potentially
explosive opportunities in the financial markets (across all time frames) and
then delivers them directly to your desktop.
In all my analysis I always
maintain a contrarian approach.
My main focus is on classical
technical analysis (price, volume, trendlines and oscillators) I also specialize
infinding both bullish and bearish divergences which in my opinion
present extra strength powerfulandreliable trading
opportunities.
The
coming bull market in
GOLD (May
17, 2002)
Note:
Feel free to email and/or share any of the charts below as long as they are not
altered.
The
Background
Welcome
to Best Online Trades dot com. I am proud to announce that my first report is
one with fairly substantial long term implications. It is a report which highlights
a fairly long term opportunity in the world of trading, a bull market in Gold.
Incidentally this is my most preferred type of opportunity since it allows one
the luxury of essentially letting the market do the work for you while you simply
sit back let the peak of the trend come to fruition.
Part of the inspiration
for this report comes from the good work that Bill Murphy, is doing over at GATA
(Gold Anti-Trust Action Committee). In this audio
interview (a must listen!) and on his website, Lemetropolecafe,
there is a wealth of information about the fundamental backdrop for a new bull
market in gold. I decided that this fundamental backdrop was worth looking into
on a technical analysis basis to see if it was confirmed in the charts. The fundamental
backdrop helps to put all the charts in perspective. You also should take a look
at Gold-Eagle.com and
Kitco.com and read through the articles and
commentary there to get an understanding of the history of currencies and their
relationships to gold. As a curiousity you might also want to check out Goldmoney.com
which is a website that allows you to use actual gold ounces as a means of making
purchases worldwide.
As a side note, I should mention that most of our
analysis will use technical analysis, however we do add other sources of information
to help build our technical analysis case. For example we have found that the
use of technical analysis in combination with cycle theory makes for a more convincing
overall technical case. In addition, we also like to occasionally add various
forms of fundamental commentary that supports the technical case. This does not
mean we are relying on fundamentals as a means of forecasting, but simply as a
further ingredient in building the larger technical case.
In summary
our case for a bull market in Gold is based on the following factors:
- Long term momentum charts on Gold indicate bullish turns and momentum -
Long term momentum charts on major equity markets indicate bearish turns and momentum
- Gold has formed a double bottom formation at the end of a 22 year secular bear
market - Rounding bottom formations are forming in the gold price as well
as mining companies - Equities have completed a spectacular bull market (bubble)
since 1982 - We are very near the next 18 year precise monetary currency crisis
cycle (from PEI) - We are very near the next major turning point in the 8.6
year global business cycle - The 18 year currency crisis cycle is coinciding
with next 8.6 year global business cycle - We have also discovered an approximate
7.6 year cycle pattern in the gold market - The US dollar appears to have
topped or is very near the formation of a major top - The CRB Commodities
Index currently has a bullish divergence
These are the major points which
will be discussed below.
so, without further delay, on to the gold charts!
Comex
Gold Yearly chart
Our
first chart, Chart 1, is truly our favorite! If you are at all familiar with technical
analysis you will understand why this is such a fabulous chart. It is a chart
of the actual price of gold from 1969 to May 17, 2002 which is plotted on a yearly
basis (each price bar represents 1 year).
There are a number of things
which can be read into this chart. For starters we have chosen to use the stochastics
oscillator. This indicator is usually a very fast changing indicator on daily
bar price charts, but note that since the stochastic oscillator is being plotted
over yearly price bars the implications are much longer term. Take a close look
at the oscillator portion of the chart below and you will notice that after bottoming
this indicator has turned upward in bullish fashion and is on the verge of crossing
upwards out of the 20 level (bottom blue horizontal line). This means very bullish
prospects for gold going forward and given that this chart is yearly basis,
it means the bullish prospects are for at the very least the next year
ahead.
The second important item to notice in Chart 1 is the price patter
on the yearly gold chart. The price pattern is characteristic of a falling
wedge, a bullish pattern. But again, keep in mind that this is a falling wedge
that has taken over 22 years to form! This is the beauty of technical analysis.
That the psychological dimensions of supply/demand, hopes and fears all blend
into a massive chart pattern covering 32 years to show a falling wedge pattern.
Even more amazing is the fact that such a pattern can also exist on a 60 minute
bar chart or any time frame of your choosing. It is all a matter of degree!
The last key item to consider about the chart below is the resistance level.
You can see the resistance level on both the indicator and actual gold price portion
in the chart below. It is the downward sloping blue line in the indicator portion
and the top downward sloping blue line in the gold price portion of the chart.
The red dot in the price bar portion is the eventual resistance which will
need to be overcome. Similarly the blue downtrendline on the stochastic oscillator
will need to be broken. In order for me to decisively conclude that gold is in
a new bull market both trendlines must be broken through to the upside.
After you take a look at the chart below be sure to also take a look at Dr
Clive Roffey's analysis (note in particular the section title labeled ASA
vs Bullion - it is a key point he makes) during 2001 of the gold sector. He
goes into detail about the double bottom formation during the period 1998 to 2001.
In his February
2001 Analysis he talks about the wedge formation that has formed at the double
bottom.
Chart
1: Gold
(Yearly Bars) 1969 to May 17, 2002
Time
Frames and Technical Analysis - an interlude
Before
we get to the next chart I would like to say a few words about time frames and
technical analysis. If you truly intend to strive to always make the Best Online
Trades then you need to understand times frames and how they should be properly
interpreted.
First, when analyzing stock charts I always make a point
of viewing the chart in the longest time frame first. Typically this will
be either quarterly or monthly price bars. The primary reason for this is that
you want to make a point right from the start of being able to see the forest
for the trees. You want to get the big picture first and see what the majority
trend is. Then all your other decisions on the shorter time frames can be oriented
around that larger 'big picture' time frame. If you have the stochastics indicator
breaking out upwards on a yearly chart for example, then you can say with
high confidence that the intermediate daily and weekly pullbacks in price as times
moves on are most likely to be gift horse buying opportunities. You need
to know what the big picture is and have confidence in it.
This is why
we chose to show the yearly gold chart going all the way back to 1969 first.
As already stated, this kind of chart has some pretty long term implications for
the simple fact that one must wait a whole year just to plot another price bar!
Now assuming the yearly chart is indicating strong bullish momentum,
then one must interpret shorter time frames such as monthly, weekly and daily
from the perspective that we are in a long term bull market in gold. For example
if a weekly MACD indicator has turned bearish, it is best to view this
as an eventual gift horse buying opportunity within the context of the longer
term yearly bullish trend.
Chart
2 below is the monthly bar chart of gold from 1979 to May 17, 2002. One glance
at this chart and you can clearly see the details of what a long and painful
bear market this has been for the metal.
Now, focus your attention
on the long horizontal white line. It represents about the 310-320 level.
That line is KEY because it represents long term support as well as resistance.
The gold price is right at that level now and most likely will test it and pull
back a bit before making a true attempt to breakout above. Breaking out above
of this resistence line would be quite significant indeed and could result in
a 'mini-explosion of sorts' given the length of the support line. This is a fairly
common occurrence I have noticed on price charts where prices have been in a congested
range under resistence but then work their way to eventually breaking through
it.
Secondly look at the horizontal blue line indicating that a double
bottom has formed. Price bottoms typically take longer to form than tops, and
gold is no exception to this rule. Price tops on the other hand often end quite
rapidly in excited buying.
The double bottom combines with the preceding
price movement to form what looks like a rounding bottom formation (red circle).
If prices continue to follow the rounding bottom pattern, expect to see price
rises at steeper and even more steeper trendline angles.
Without going
into detailed discussion about it, this rounding bottom pattern brings up a separate
discussion about how confidence levels rise with higher price levels. Briefly,
it is human nature to be cautious at first in any price move. Only after most
of the move has been made do people truly feel confident enough to take large
positions. This behavior pattern is quite clearly seen on rounding bottom formations
as well as parabolic type price rises.
Chart 2:
Monthly Gold Price Chart
Quarterly
Gold Price Chart
Chart
3 below plots gold prices on a quarterly basis. Most of the time my indicator
of choice is the MACD (Moving average convergence divergence) because it works
well with long term charts in pinpointing key trend changes. It also tends to
smooth out excessive 'noise' in the markets and keeps you on top of the prevailing
trend.
As you can see from the MACD portion of the chart below we currently
have a bullish crossover that is rapidly trending (sloping) upwards. An
eventual crossing over of this indicator above the blue 0 line below would be
additionally very bullish indeed.
When looking at both the Quarterly
MACD as well as the quarterly gold price chart below you can begin to see some
sort of regularity to the price movements, cycle regularity that is. It appears
there has been an approximate 7.6 year cycle period between gold peaks from 1980
to present. The end of the next cycle period would come to a close in mid to ending
June 2002. This cycle period does not appear to be very precise but still worthy
of observation given how markets do tend to move in cycles over time.
Chart
3:
Quarterly Gold Price 1960 to May 17, 2002
Monthly
US Dollar Price Chart
The
next chart (Chart 4) is the monthly US dollar price chart going all the way back
to 1985. If you study the chart carefully and then glance back up at the gold
price charts you will see a correlation between the movement in the gold price
and the rise of fall of the dollar. When the dollar has been in persistent downtrends
gold has moved higher. This is a well known relationship.
So lets now
look at what the current US dollar price action is telling me. Triple top!
It is very clear to see as you look at the end of 2000 time frame to present.
The US dollar has formed a triple top. This clearly has bearish implications for
the dollar going forward. Plus, given that the below chart is monthly basis, the
triple top has longer term implications for the decline.
Secondly, take
a look at my favorite, the MACD indicator below on a monthly basis. The picture
pretty much speaks for itself. It is weak and declining, the bears are in control
of this one.
Chart 4: Monthly US Dollar Price chart 1985 to May 17. 2002
Chart
5 below zooms into the time frame of weekly prices on the US Dollar so we can
take a closer look at what is going on internally with regard to prices and psychology.
Clearly, I can identify below a triple bearish divergence on the US dollar.
Note the falling slope in the indicator window and the rising slope of prices.
What this says is that the US dollar is moving higher on momentum only,
but internally the bears are grabbing control. Bearish divergences in many cases
lead to sharp price moves as the crowd trying to gain control eventually does
so successfully. Just look back to the 1997- 1998 time frame. At this time there
also existed a bearish divergence and as you can see the price moved sharply lower,
almost in crash fashion. This was also the time period of the 1998 asian currency
crisis.
The current bearish divergence seems to show a similar downside
move is upon us. Especially when you also take into account that we are fast approaching
the 18 year monetary currency crisis cycle discovered by Marty Armstrong
of Princeton Economics (more on this to follow near the end of this report).
Short term, note that the US dollar is at about 112.00 This is sitting right
on support. So it seems possible there could be a brief upside reaction on the
dollar to test this support area. If we do get this brief reaction rally to the
upside in the dollar, it could very well be one of the best, if not last great
opportunities to take long positions in gold.
Incidentally, our whole
reason for including dollar charts here is because of its inverse relationship
to gold price moves.
Chart 5: Weekly US Dollar Price chart 1985 to May 17. 2002
The
indicator below is the Coppock Curve. The Coppock curve is an oscillator and is
a momentum based indicator. It makes an interpretation of percentage changes in
a security over previous years and uses that as a measure of investors bullishness
or bearishness. The important aspect of the coppock curve is that it tends to
smooth out market noise. Once this indicator starts moving in a particular direction
with a steep enough slope it is very likely to continue in that direction.
Below you can see the Coppock curve over the weekly price time frame has
turned and is beginning to form a negative slope. This is by no means any guarantee
that it will continue to form a negative slope, but after you take all the other
charts in this report into account, as well as the upcoming cycle turning points,
one can build a stronger case that this oscillator will continue down, if not
accelerate down.
Chart
6: Weekly US Dollar Price chart 1985 to May 27. 2002
10
day per price bar Gold chart with Coppock Curve
In
Chart 7 below we again take a look at the Coppock curve, but this time
as plotted against the gold price. The coppock curve smooths out most noise on
daily price bar charts as well as weekly price bar charts. But when we use a 10
day (2 week) price bar interval, you can really begin to get the big picture
of where momentum is heading.
Key things to note in the chart below.
Notice first that this chart is covering quite a long overall time range starting
in 1969. So we are clearly talking about long term implications with this chart.
Next, notice the slope of the coppock curve since it started. Negative slope.
But also notice that the degree of negative slope is lessening. And lastly
note that as of the most recent data point in the chart the slope is slowly turning
horizontal. If the gold price either holds its current levels or continues to
rally and hold weekly and monthly levels, the long term coppock curve below will
start to turn upwards. Multi year momentum would then be on the + side.
If you are wondering what the coppock curve looks like for the Dow for the 10
day per price bar chart, it looks somewhat like the opposite of the chart below.
The coppock curve has turned down for the dow. Momentum is towards the downside.
The exact opposite of gold. Are you starting to see the picture developing here?
Equities turning down after a bubble top and 18 year bull market.. and
gold turning up after a 22 year bear market. Which market would you rather
be invested in? A market that is only 2-3 years from a major top? or would you
rather be in a market just coming off of a 22 year year bear market, and double
bottom?
While the risks may seem seem very high to start jumping into
gold based on the fact that the metal is so hated after a 22 year bear market.
In reality, the risk is actually the lowest now, even though it may appear
to be the highest.
Chart
7 : 10 day per price bar Gold 1969 to May 27. 2002
Long
term Dow Jones Industrials Chart with MACD indicator
Anyone
who is holding equity mutual funds and/or paper assets ought to look at chart
8 below. For the first time in almost 22 years, the MACD appears almost ready
to crossover to the downside. And have you had a chance to listen to all the
bullish commentary on CNBC? and other mainstream media sources? Maybe they should
take a close look at this chart and share it with their listenership!
Incidentally, the momentum shift that is shown to occur below in chart 8 has implications
for the next decade. And I don't just mean money implications. If you study markets
and psychology long enough, you will understand that the markets are to some degree
a barometer of the social mood and lead to certain historical events. Well, the
bull market from 1980 to 2000 was the age of peace and prosperty and wealth. But
I will leave it up to other experts to make predictions of what is to come in
the next 10 years. But my main point is that just based only on the chart below,
if you are thinking about holding equities for the next 5 to 10 years, you may
want to re consider. Look carefully at the gold charts above and see how the indicators
are showing opposite of what we see below in chart 8.
What I have found
is that with regard to the MACD is that typically right before the actual crossover
(yellow line crossing over red) prices will hover and meander sideways. But the
moment the actual crossover occurs, one can expect a sharp crack in the
market, in this case it would be to the downside.
But of course this
is not always the case. A crossover in the MACD can also occur if prices simply
stay horizontal or flat. Either way though, that is still by definition a bear
market. Just look at the price of gold since 1980. Flat to descending prices.
A long term bear market.
Chart
8 : Dow Jones Industrial Average 1910-May 28, 2002 (6 month price bars)
Long
term Dow Jones Industrials Chart with stochastics oscillator
Below
again you see the Dow Jones Industrials chart. This time yearly. Note that stochastic
oscillator plotted against yearly dow prices is ready to cross the 80 percentile
line to the downside (bearish).
Also note how prices broke out north
out of the channel range during the super bullish stage.
Chart
9 : Dow Jones Industrial Average 1910-May 28, 2002 (yearly price bars)
Long
term Dow Jones Industrials Chart with stochastics oscillator
Now
compare the chart below to the chart above.. Again we see an opposite picture.
Gold has broken out of the channel range to the downside in exceedingly bearish
fashion.
The blue bars represent a hypothetical rally to the trendline
channel range.
Chart
10 : Gold, yearly Price bars 1969 to May 28, 2002 (yearly price bars)
Gold
mining stocks not only track the price the gold, but they move proportionally
higher relative to the current price of gold (and lower if gold price moves down).
So in a manner of thinking they are like option plays on the price of gold without
the expiration date.
Note that we are talking about the trading characteristics
of a commodity. The price action tends to be characterized by sharp emotional
moves and spikes with excited peaks. Gold and gold mining stocks tend to trade
and move like small stocks. Keep in mind though that they can still trend in bull
markets. You only have to look at the chart above and observe the bull market
from 1969 to 1980.
In Chart 11 below, notice the extremely sharp price
moves after some base building formations labeled as 1 and then the peak
of the moves labeled as 2.
Also note the volume surges in the
period 1999 to 2002. This is what technicians call base building. The same sort
of base building process was also seen in the 1990 to 1992 period. Remember bases
always take longer to form than tops.
Chart
11: Caledonia Mining Corp Monthly Bars 1984 to May 28, 2002
Chart
12 is a plot of Caledonia Mining Corp superim posed over the gold price chart.
Note the similarity in peaks and troughs in price. Also note that many publicly
traded gold mining companies have only been publicly traded from the 1980's period
forward. So the price peaks in gold mining shares are during an overall period
of a bear market in the gold price.
The best mining stocks to
hold during a bull marked in gold are the unhedged ones. Many gold mining
companies turned to hedging because of the bear market in gold.
GFI(Goldfields) and DROOY
(Durban Roodepoort Deep) are 2 examples of gold mining stocks that
are unhedged mining stocks and both high quality gold mining companies.
Eco Bay Mines ECO and Barrick Gold are examples of mining companies that do large
amounts of hedging and therefore are not ideal investment candidates.
There are many other junior mining companies as well such as the example chart
used above, CALVF (Caledonia Mining Corp.). There are many other similar
smaller mining companies like Caledonia for example, GSRSF (Golden Star Resources)
and MYNG (Golden Eagle International) which has the rights to various potential
mining properties in Bolivia. They are more pre-development stage companies and
have rights and titles to gold mining properties and mines in places throughout
the world. But as you can see from the price charts they rise along with the gold
price. Remember, in a bull market run, the rising tide lifts all boats (at least
in the first leg of a bull market).
As far as when is the best time to
enter these types of shares.. probably the best time will be during the
first 2 weeks June 2002 based on my current daily charts. Keep in mind though
that there is always the possibility of 20 to 30% pull backs right after taking
a position in this sector. That is why it is so important to know what the longer
term trend is.
As well there are gold and precious metal mutual
funds. The top performers in this sector can be found
here.
Marty
Armstrong and the Princeton Economic Confidence Model
Marty
Armstrong headed Princeton Economics International and I was able to pick up the
basics of his cycle model.
Basically his Global Business cycle is based
on a period of 8.6 years. If you look at Chart 13 below you can see that many
important financial events where correctly pin pointed with this business cycle
model.
The most important thing to remember however with regard to this
8.6 year global business cycle is just that, that it is a global model and is
based on international capital flows. The model is not meant just for one country.
For example as you can see in Chart 13 below 1989.95 was the peak in the Japanese
Nikkei stock market bubble.
Unfortunately I don't have the luxury of
Marty's interpretation on what he sees is ahead for the financial markets, but
I do have enough bits of information which seem conclusive enough to agree with
the above posted charts.
According to Marty, new bull markets are only
born when you have a concentration of capital going into the new sector
coming from all around the world. Just look at the Nikkei bubble in 1989 and the
US tech bubble into 2000 and you will find that foreign investors participated
in large part. Capital itself acts like a herd of wild animals moving into the
market of choice, the next 'big thing'.
The key things to be aware of
are the upcoming 2002.85 turning point which you can see in chart 13 below. That
corresponds to November 6, 2002. The second key thing to be aware of is chart
15 which is the 18 year monetary currency crisis cycle discovered by Princeton
Economics. The last point was in 1985 which brought with it a peak in the US dollar.
18 years ahead of 1985 brings us to 2003. Marty says that the fact that these
2 cycles are coinciding is very significant.
Here is an extended excerpt
from his 1998 Global Capital Market Review:
"While we have
also discovered various timing models specific to individual markets and economies,
the Princeton Economics Confidence Model still remains the major overall business
cycle around which everything else moves. When it comes to currencies, for example,
we have determined that there is a specific 18 year Monetary Crisis Cycle that
has also worked precisely. Here we have illustrated this cycle overlaid upon the
British pound. Every 18 years we have seen a sharp rise in the US Dollar going
back throughout the history of the United States. Again, the most significant
aspect of even this model is how it interfaces with that of the Princeton Economic
Confidence Model. We can see that the last turning point of this currency-based
model was 1985. The fact that the target date of 1985 lined up precisely with
the low in the Princeton Economic Confidence Model in 1985.65 was the primary
reason for the extreme rise in the value of the dollar to historical levels. The
next target date for this model will be 2003, which again is lined up very closely
to the low on the current 8.6 year global business cycle of 2002.85. For this
reason, we should expect the currency markets to become a major focus over the
next 4 year period. The most important aspect to understand here is how two independently
developed models combine to provide you with a sense of when the major turning
points come together. In the case of this Monetary Crisis model, we also have
determined that very important amplitudes tend to occur as this cycle builds.
Key turning points thus appear at intervals of 72 years and 108 years. For example,
108 years back from 2003 brings us to 1895 during the crisis period of the Silver
Democrats. One interval further back brings us to 1787 and the collapse of the
Continental Currency in the United States. These two models together certainly
intend to imply that the 2003 turning point will be very significant indeed."
In another piece of his most recent commentary that I could find from the
year 2000 he states:
"I view the world from a global
correlation perspective and it just doesn't seem possible to achieve a raging
bull market in metals when stocks are the flavor of the month. Historically, bull
markets are created when capital concentrates, and that focus is in the
stock market for now. When that concentration breaks, capital will look around
for the next great investment. That should be the commodity cycle between 2002-2007
and perhaps extend out as late as 2012. For now, the
metals should make their final lows by 2002. Either way, they should
be contrasted by a bubble top in stocks."
The PEI Confidence
Model is not 100% accurate. But taking into consideration the number of times
the model in Chart 13 has accurately pinpointed major significant economic turning
points, its hard to find anything else as reliable as this. But one should look
at this model in addition to all the technical analysis charts from above and
draw your own conclusions. In my opinion, all the technical analysis charts above
complement the cycle analysis of Princeton Economics.
Good
Trading to you for your health, wealth, and well being!
