Technicals | Sep 26 2012
Bottom Line 25/09/12
EW Trend: Impulsive
Price Trend: Up
Trend Strength: Strong
Technical Discussion
LAYMANS:
Price has continued to confirm itself with the recent tagging just short of [US$/oz] 1800 at 1790 a clear indication that this could well and truly be the real deal. The breakout of the standout pattern on the 31st August had the fuel via a volume surge to sustain, and thus far has done so and some. So the convicted move above 1680 has continued to stick and has been backed by buyer volume which is really all we could ask for. As always though we continue to look for price action to confirm on an ongoing basis.
As we keep mentioning, we've been working with higher degree patterns, so the breakout of the larger pattern should have longer term backing now. And by that I mean a sustained move higher that may well remain a feature of the chart for the next year or two. The best test though will be the first thrust lower that will serve to confirm strength. And to reveal whether such a test can be absorbed successfully and bring on the next wave of buying . We think it will be, although this initial swing lower may test the resolve of traders who have come in a little late on this initial move. Outside a potential shorter term shake out though, I think this market has the grit to sustain a bullish look and feel to it for some time come. Price may even look to stick its head into blue sky before the year is out. If not a given early in 2013. Nothing not to like here for the moment.
TECHNICAL:
Price continues to prove it has upside momentum and even the lack of retest of the breakout, at least to this point, is backing the authority we are seeing within this move. And as we always say, you can't argue with price. No matter what fancy indicators or forms of analysis you wish to use, price will always be the leader within the pack. And for now what we are seeing with price is impulsive upside action fuelled by higher than average volume that has continued to sustain the move. We continue to label the final probe lower within the larger descending triangle as a Wave-(C) of [4] with the clear and decisive breakout of this pattern circa 1680 enough to keep our longer term bullish rhetoric well and truly front and centre. Price is overbought at present levels yet the upside trajectory has remained regardless and this is also a very big positive for mine. It has certainly been an exercise in patience watching this corrective pattern unfold over the past 12 month yet with the timing almost exact in relation to when this breakout was going to occur.
That said, no sustained trend can continue to progress without healthy breathers taking shape as part of the process. In Elliott Wave theory when a new trend develops as we have here as part of the proposed higher Wave-[5] the first pullback to test strength is generally the deepest. So once this initial move higher does exhaust as part of a Wave-1, I am going to still expect a Wave-2 test of strength to pullback at least 50.0% of the move off the Wave-[4] lows. A process that will unwind our overbought divergence indicator and set up the next and potentially strongest move of the 5-wave upside pattern we are expecting. And that will be via a strongly impulsive Wave-3 which in all likelihood will be the trigger for price to break into new historical highs well above the higher degree Wave-[3] highs which presently sits at 1939. The triangle breakout target aligns a move more towards 2100. Yet bigger picture targets certainly have higher in their sights. So the positive longer term outlook remains here, yet as mentioned, a reasonable dip may still before required first before things really kick into gear.
Trading Strategy
We accumulated long positions in Gold at 1630, then 1633 and then at 1647 with an average position holding at 1636. Stops are at break even. Now this is the difficultly we have here. Without a healthy pullback having being witnessed thus far, we need to remain cognizant of the fact that in all likelihood we are going to get one. And it is not a matter of IF but a matter of WHEN. So depending on your personal trading time frames it will dictate how aggressive you wish to be with your stop position. Short term traders that took on our recommendations could quite simply raise stops up to just under 1720 with a further raise to just under 1753 on any break above 1800. Longer term traders who like the analysis and wish to ride this for as long and hard as possible, may wish to raise stops up and lock in only small profits at just under 1647. Which was the key outside reversal breakout day low. Any Wave-2 dip should not take out this more conservative stop position with the opportunity then to participate in the projected larger move higher without having to worry about timing another entry down the track. So all this depends on your risk profile and trading time frames. It would be a different story if these were micro patterns we were trading. Yet on the bigger patterns, sometimes we need to keep things wider in relation to stops if we wish to capture the potential of a longer term trend. Bullish regardless.
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