The Chart du Jour

If This Chart Was a Stock,
Would You Buy It?

September 28, 2000

By, Barclay T. Leib

Look back at 1973-74, 1979-80, or 1987...and you will see on each occasion the following 'Late Cycle' phenomenon: Oil and oil stocks are not the last sector of the market to rally; they are only the second to last. Gold and gold stocks have repeatedly been the last.

So it is today that we ask you to take a look at the two chart pictures below, and ask yourself in each case: if this chart was a stock, would you buy it?


Chart courtesy of FutureSource.com


Chart courtesy of FutureSource.com

The two charts are of course not a stock, but a weekly and monthly look at the price action of December 2000 Comex gold. They have taken their sweet time lulling people to sleep, but they are turning.

It is hard to reproduce here, but if you have a copy of the traditional bible of technical analysis, Edwards & Magee's Technical Analysis of Stock Trends turn to page 80, Figure 38, and ask yourself if the weekly chart of gold above does not resemble Edwards & Magee's classic rounding bottom formation pictured on that page. The Aug-Sep 1999 burst of volume and spike up represents a first shot of strength described by Edwards & Magee as "a few days of almost vertical price movement....almost always denoting a change in Primary trend and an extensive advance yet to come. The advance, however, seldom carries right on in a 'sky-rocket' effect...On the contrary, the up trend which follows the [initial spike] is apt to be slow and subject to frequent interruptions, tiring out the impatient trader but yielding eventually a substantial profit." On its way to doing so, "prices will almost invariably quickly drop back into their former channel and the gradual rounding movement is resumed."

So it is we propose to you that gold is slowly emerging out of its "rounding bottom" dormant state. Cyclically the latter part of 2001 would be an ideal time to see an acceleration out of this rounding bottom -- but could an acceleration happen faster, sooner? Perhaps. After all, and anecdotally, look at this piece of junk our government has proposed for us to accept as being worth $1. The first new one-dollar coin I picked up already appears to be tarnishing much as the penny coin does.

Now go back and read our 1999 story, Anecdotal Signs in Our Paper Currency, and tell us that inflation isn't going to win out over other deflationary pressures in the U.S. Tell us it's not winning already.

Buying gold may sound very much out of fashion and stupid, but buying the chart patterns above hold great technical promise.

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