Monday, September 3, 2007

Ripples, Waves, and Tides

The month of August has come and gone, so I thought I'd show a monthly chart of gold stocks to see how this month affected the big picture.

I posted a monthly chart of the XAU a few weeks ago, and I indicated that a bull flag had formed. This pattern has not yet come to fruition, but it has not been negated either. You'll see what I mean in this following chart:

Keep in mind that this chart goes back to the 1980's, and each candle line represents an entire month. The candle furthest to the right represents the month of August. What is interesting is that prices dipped far below the confines of the bull flag "intra-month" but closed within the pattern by the time the month came to an end. Since I only consider closing prices, this means that the pattern is still intact.

You will also see in the above chart a circle made on the MACD histogram. I feel that this circle represents the date the the gold bull market was born. As you can see, the histogram has never fallen back below the zero line since that date. This shows that the primary trend is still up.

As you may know, Charles Dow, who was one of the founding fathers of technical analysis, stated, "The market is always to be considered as having three movements, all going on at the same time."

These three movements could be compared to tides, waves, and ripples of an ocean.

I feel that the monthly chart above represents the tide. Daily and Weekly charts represent the waves, and short term intra-day charts represent the ripples. Since the primary trend, or tide, is still up, I feel that this will have a positive effect on gold stocks for the months and years to come.

No comments: