Monday, 1 July 2013

Some pitchfork gold charts aftrer a snapback rally of $80 from $1180 to $1260 on Friday and Monday - 2013-07-01

OK, now I have some Andrews pitchfork gold charts, which I have wanted to study since watching an excellent webinar on run by Paul Coghlan and the well-known silver trader Andrew Maguire.

This is a fascinating technical chart indicator - very simple to construct - that I created once gold had its plunge from $1590 to $1321 on Aptril 12th and 15th. This trend channel (also called median line analysis) has defined the downtrend ever since the April crash. In fact, there was some price action before April 15th that had a similar downslope (see the action at $1621.30 at the top left on the first chart).

The pitchfork channel is constructed from the top and the bottom of a move and from another high or low nearby. Inthis case, I used the top and bottom of the crash at $1590 and $1321 and a minor low at around $1560 at the upper left of the chart.

The trend channel from that midpoint is then drawn to the point midway between the high and the low and that is why it is called the median line (labelled ML on the chart).

Now let's look at the subsequent trading. Gold had a decent rally after the crash and then went up to $1480 came back down to about $1350, and then had a very minor rally forming a triangle or pennant pattern. These two highs lie on a line parallel to the downtrend that is already marked. The wonderful thing about pitchforks is that it gives equivalence to these two points, even though they are not at the same price. (Note the dip in the centre of the chart that went below $1350.)

Then we had the June plunge from about $1400 to $1260 and then a minor low. This low was in line with the previous low at $1350!  People saw this as a crash but actually, the fall was only the same as the fall from the previoous $1480 high to $1350 in the middle of the chart.

Next the price bounced just a littleat around $1253 before dropping very close to the bottom line of the trend at $1179. That bottom line is important supprt and it held so far and we have had a good bounce. Where has the bounce gone? Well, it has gone to the decond sloping line from the bottom and. as you can see, this line has been support on two occasions but now serves as resistance. See second chart (blue circles).

The blue circles show the trading around  the line that runs parallel to the median line but a little below it. There was a small breakout and test, followed by two bounces at this line as support, then a failure and a move down to the bottom of the channel and a good bounce back up to that line. Where did the bounce hesitate? Well, right on the line! Are we going to see resistance there and another move down to the bottom or will there be a breakout? Gold needs to have this line as support to start to build a base. It needs to get above the Top Line of this downtrend which is at about $1400 now (but in a few weeks will be at $1350) to break it to the upside. That would be the start of the repair of this market.

Now, let's take the magnifying glass to the above chart. I looked at the fall from $1300 to $1180 as it was happening and drew new Andrew pitchforks to study it. The fall was in 2 stages. I initially drew a new pitchfork when the price fell to $1270 to about $1240. However, the price quiclyk went to a lower low at about $1225 (see below), so I drew a new steeper pitchfork.

The second pitchfork (below) has quite a bit of trading along its median line early on but the price then moved above its top line quite soon. As you can then see from the above chart, the first pitchforkalso has quite a lot of trading especially along its lower line.I drew a new bottom parallel line from the low at the left of the chart. This lower line then dictated where the final low was at $1179!! From there, the price moved up quickly to the median line, traded back and forth there for a while and blew to the upside out of the trend channel, leaving it behind.

Now I am fascinated by this because it shows that indecision came into the bears who could not hold this downtrend, either on the shallower long term pitchfork or the stepper one. First, the shallow one was in play, then the steeper one, then the shallowe one. This suggests a short term turn in the market as bearish traders were exhausted.

As you can see from the chart above, the price then moved up to one of the shallow parallel lines which is in fact from the original pitchfork in place since April, which is still very much in force. Now I wonder if there will be a longer term upurn in this market or just the resumption of this larger, slightly more gradual downtrend. Note the tradin in the chart above at the top left and top right of the chart, around the shallow downtrend lines, which are from the pitchfork that dominates the trading since April 12th 2013.

To get a proper breakout, this longer term pattern has to be broken to the upside at $1350 as mentioned earlier.



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