Friday, 24 July 2015

Falling wedge of gold is similar to recent bearish pattern in Japanese Yen. Targets: $988, $910, $810.

Now I have taken a look at some more examples of falling wedge patterns I note that many examples online have a falling wedge occurring in a longer term uptrend and then they interpret the pattern as bullish, so it becomes a continuation pattern in a sense in terms of the overall trend. Most sites always see a falling wedge as bullish.

The present gold falling wedge comes after a general downmove, so does that make it more likely to have a bearish outcome or not?

Looking at Google images I can find very few examples of bearish outcomes from falling wedges but one is particularly interesting and it comes from Rambus chartology:

Before I clicked on the above linked image, I guessed that pattern might be an early 1980s or mid-1980s gold chart but it was the Yen from 2013 to 2015 which has been positively correlated with the falls in gold but has already broken aggressively to the downside. Gold may be in the process of following perhaps?

The gold pattern for 2013-2015 is similar and the falling wedge contains three pennants, both of which have gone to the downside.$gold

Annotating it here:

The Yen has been well correlated to gold for 3-4 years. Visually the correlation was quite stunning in the mid 2014 timeframe and the April 2013 crash in gold was preceded by t good downmove in the yen and the two bear markets started at roughly the same time on Abenomics in September 2012.

Usually gold has followed the Yen main down-moves within a few weeks but late in 2014, gold did not crash as the Yen did; it held in its trading channel and made the new low at $1130. It is fascinating to see whether gold will follow the Yen and Barrick down to new lows.

It does not look gold for gold based on this analysis.

Possible target from breakdown on pennant number 3 using $1135 and $1308 as starting prices and $1160 as the apex of is pennant:

$1160-($1307-$1135)=$988 gold.

If the channel doubles its current width and breaks to the downside the target is $1080-$170 or $910  (the channel is $170 in height).

However if you take the original width of the channel it was $250-270 deep:

$1080-270 = $810 which reaches Rick Ackerman's bearish $817 target neatly, given many timerecently on the Korelin Economics Report and based on an ABCD pattern starting in September 2012.

I could use the same interval of the summer rally ($1180-$1434) in mid-2013 as the starting channel width for the ensuing (bearish?) falling wedge i.e. $254, though as always it depends where you take the measurements. If the channel floor is at $1080 and it falls out of bed, the target would be around $826.

If gold bounces here and fails to get to the channel top at around $1250 then watch out below afterwards. Gold needs to get above $1250 to break out to the upside.

Looking at gold stock charts, some have already broken down convincingly as per the Yen: Barrick and Yamana for instance - somewhat spectacularly!

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