Not a Pattern of Progress
One of the things cyclic analysis has us doing is constantly reviewing price action patterns. A comparison of a 1993 pattern, that worked for PDG, with one today leads us to a cautious stance.
Returning to 1992, the prior major precious metals bottom, you can see the first low on August 13, at 10.00, with a second test of that low 21 trading days later, on September 13, at 10.00 again. At that point, most people thought we were on our way.
But there was a fooler coming. After a November price high at 12.37, the stock dropped back to the prior low area for one more test. On 11-27, the stock again hit a low of 10.00, and then we were on our way.
Notice what being on our way means. It means a succession of higher lows and higher highs. This is what a bull market looks like. We've marked the higher lows and higher highs on the 1993 chart of PDG.
Contrast that 1993 price action with what is happening in today's price action. We have what many now think was a price bottom last October. Price action since then has been a series of lower highs and higher lows. Not bull market action at all.
In fact, it is possible we are seeing the formation of a pennant. Pennants form from just the formation we are seeing here. Lower highs and higher lows. As we get to the nose of the pennant, we expect price action to break out, either up or down. That breakout often is a clue to near-term direction of price action to come.
A clue to the direction of the breakout is the direction of price action before the formation of the pennant. This pennant began to form with the October 25 price bottom of 7.25. Price action before that bottom was decidedly down.
Therefore, our clue as to the direction of the breakout from the nose of the pennant is down.
Between daily and weekly downside FPL price targets; open gaps to the downside; a possible pennant formation; cycle bottoms still ahead of us; the evidence is mounting. The bottom may still be ahead.
As another little aside, look at the stochastic on the PDG daily chart. It got all the way up to 90 and could only put prices back to the December price high. December, 9.87; April, 9.91. The tug from the stochastic will now be to the downside.
We keep trying to find confirmation that our thinking, which shows a price bottom yet to come in Gold, is wrong. We continually challenge ourselves to find support for the idea that the bottom is actually behind us. Price action, even in the XAU and gold stocks, says, "No, not yet. Keep looking."
David Marantette
April 2, 2001
David Marantette is the publisher of the weekly Goldstock Letter.
He can be reached at e-mail: gold@goldstock.com or at 1-877-465-3873.
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