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US Equities versus Gold
Sept 2002 Update

In my last article I presented a review of the status of the long time scale cycle associated with the flow of investment capital between paper assets such as US equities and hard assets such as precious metals. During the 20+ years prior to the year 2000, investment capital in general was clearly flowing out of hard assets and into paper assets such as equities. Using the principles of Classical Charting (see references [1], [2]), evidence was presented that suggested this trend was showing signs of weakness and possible reversal. This article presents another update of the current situation, which includes some of the long awaited technical confirmations of a reversal that have since appeared.

The Importance of Risk Management

Before I present my updated interpretations of the charts, I want to take a moment to answer the mail. Several of you e-mailed asking for specific recommendations on things such as the selection of Gold shares or entry and exit price levels, and were no doubt disappointed when I refused to provide such advice. One reason for not responding to such requests is that I am not a registered investment advisor. However, my main reason is that it isn't feasible for me to provide recommendations that are meaningful to someone other than myself. To provide some additional perspective on this, let me digress to the bigger picture.

Many investors take the viewpoint that the most important (or perhaps even the only) component of an approach to investing or trading markets is some form of fundamental or technical analysis that is then used to decide when to enter and exit positions. I strongly disagree with that perspective! Portfolio or Risk Management, or the assessment and management of the risk of loss is by far the most basic and important element of any approach to investing or trading. While it is impossible to even do justice to the subject of Risk Management in a few paragraphs, let me attempt to provide what I think are some of the important highlights. (See reference [3] for a comprehensive treatment of the subject from a mathematical perspective).

An important component of any approach to Risk Management is how it attempts to limit potential or actual losses associated with any single situation or position. Novice investors or traders often make the mistake of allocating too much capital to a single situation or position. Deciding how much capital to allocate to a situation is just as, if not more important, than entry and exit timing. This is particularly true when leveraged instruments are being used, such as buying shares using borrowed money (margin loans) or derivatives such as futures or options. Using leverage can translate to larger potential rewards, but also to greater risks. Avoid leveraged instruments unless you thoroughly understand the risks involved and how to properly control them.

Another important component of Risk Management is the component that addresses the possibility of a long string of consecutive losses. The possibility that a given approach will suffer a long string of losses, or a large single loss is closely related to the degree of diversity of the instruments in the portfolio and also in the approach used to decide when to enter and exit positions. Greater diversity generally translates to a reduction in the probability of these types of losses. The diversity of the portfolio itself will depend on the markets that are selected; bonds, equities (domestic and foreign), currencies, commodities, and precious metals to name some common choices. Additional diversity can be obtained by employing different approaches to deciding when to enter and exit positions. With adequate capitalization, diversity can be increased by employing multiple strategies designed for different time frames; long, intermediate, short term, or perhaps even intra-day.

A subject that is closely related to Risk Management, is that of Trading Psychology, namely the role that human emotions play in investing and trading. To get right to the point, most of us (myself included) have a basic tendency to react to our emotions in a manner that is often inconsistent with the guiding principles of Risk Management. Don't be too quick to dismiss these issues as they apply to any investor or trader who is also a human being. They affect the inexperienced, with the average US equity investor being an obvious example. While any reasonably prudent approach to Risk Management would (at a bare minimum) dictate a reduction in the fraction of portfolio capital allocated to US equities, many inexperienced investors continue to hold fully invested positions in technology, telecom and other equity sectors which have experienced staggering losses. Most people have enough sense not to stand in front of a speeding train, but when there is money involved, the common sense notion of trend is often thrown to the wind in favor of hope in its purest form. On the other hand, experienced traders can be affected just as easily as the inexperienced. The collapse of Barings Bank and the LTCM hedge fund are only two examples where things went horribly wrong because of rather novice errors in Risk Management made by people who should have known better.

One of the more prominent examples of our tendency to react to our emotions in a counter productive manner is the strong desire to always have a complete and rational explanation for how a market is behaving. Visit any stock forum and I can almost guarantee there will be a posting asking; "Why did the market go up (down) today? It doesn't make any sense!" This response is quite understandable. We feel better when we think we are in complete control. However, the truth of the matter is that reliable clues to the short term direction of a market are more the exception than the rule (proponents of the Efficient Market Hypothesis will of course disagree with this). This is equally true of fundamental and technical analysis, including Classical Charting. Markets are by nature a meeting ground of opposing opinions and viewpoints. It shouldn't be a surprise that markets sometimes behave in a manner different from what you might expect. Under this supposition, it is clear that a well thought out approach to Risk Management is what protects and guides us during those periods of time where there are no reliable cues as to the short term direction of the market. A side effect of the desire to always understand market behavior, is that it increases the likelihood one will adopt an opinion or bias that in the end turns out to be wrong. Emotionally, it can be difficult to discard opinions because of the perceived damage to our pride or self esteem. The financial consequences of this basic tendency can be severe.

Let me close the topic of Trading Psychology with a few quotes from one of my favorite texts on the subject; "Reminiscences of a Stock Operator" (see reference [4]). This book was first published in 1923, and although it is a work of fiction, it is largely based on the life of Jesse Livermore, a colorful stock speculator of that era.

• "What beat me was not having brains enough to stick to my own game, that is, to play the market only when I was satisfied that precedents favored my play."
  
  
• "In big bull markets the plain unadulterated sucker, utterly ignorant of rules and precedents, buys blindly because he hopes blindly."
  
  
• "One of the most helpful things that anybody can learn is to give up trying to catch the last eighth, or the first. These two are the most expensive eighths in the world."
  
  
• "Money does not give a trader more comfort, because, rich or poor, he can make mistakes and it is never comfortable to be wrong."
  
  
• "The speculator's chief enemies are always boring from within. It is inseparable from human nature to hope and to fear."
  
  
• "I think the clearest summing up of the whole thing was expressed by Thomas F. Woodlock when he declared: 'The principles of successful stock speculation are based on the supposition that people will continue in the future to make the mistakes that they have made in the past.'"
  
  

Another favorite text of mine is "Market Wizards" (see reference [5]). Both of these books are easy and also quite entertaining reading. I highly recommend them to anyone who has a genuine interest in improving their investing, trading performance.

Many experienced investors and traders formulate approaches that are mechanical in nature to help control risk. (A mechanical approach is one where entry and exit decisions are described by some set of unambiguous rules). The big advantage of mechanical approaches is that they remove the negative effects of our emotions from the decision making process.

One of the reasons I am such a big proponent of Classical Charting is that it is an excellent building block for the construction of mechanical approaches to investing and trading. Completed classical chart patterns provide an unambiguous price objective. These price targets are not 100% reliable, but they are still useful for identifying potential situations that have a favorable risk to reward ratio in a relatively mechanical fashion.

For those of you who haven't taken a serious look at Risk Management, my advice is to get serious about it or look for another market sector to invest in or trade. The Gold sector is well know for its potential to generate bone jarring levels of volatility. I think it is quite likely that over the next few years there will be time periods where volatility in the Gold sector will dwarf what we have seen recently.

I hope I have made it clear that my approach to investing and trading goes well beyond technical analysis. Given such a personal viewpoint, I can't really provide specific recommendations that would be meaningful to any one single reader, much less all of you at once. An approach to investing or trading that is right for you must consider many things; your financial goals, level of capitalization and experience, and basic personality traits. You yourself are in the best position to formulate such an approach, and there are no short cuts.

US Equities versus Gold Bullion

Recent market action has erased any lingering doubts about the direction of the intermediate to long term trend of the US equities versus Gold ratios. The combined forces of weak US equities and strength in Gold bullion worked together to convincingly complete a 4+ Year Head and Shoulders Top pattern in the Standard and Poor's 500 Index to Gold Ratio that I profiled in the last update. The ratio first broke through the neckline on Wednesday 29 May and proceeded to fall sharply to a closing value of 2.495 on 26 July. With the help of a violent recovery in equities, the ratio has rebounded somewhat since that time. At the time of this writing, the ratio doesn't appear to have enough strength to retest the neckline, but of course this is still a possibility. The breakdown from the neckline occurred at a value of about 3.327, which gives a measured objective of roughly 1.962. A weekly chart of the ratio is shown below.

For those of you who prefer to use the Dow Jones Industrial Average to Gold Ratio the situation there is very similar (chart not shown). The ratio first closed below the neckline of the possible Head and Shoulders Top pattern on Friday 21 June, at 28.83. The following week the ratio moved down only slightly and then snapped back through the neckline. The pattern was convincingly completed during the second week of July, and the ratio then plunged to a value of 24.09 on 23 July. The rebound that followed violated the neckline, but the ratio has resumed its downtrend and is close to making new lows. The objective of this completed pattern is the 18.91 level.

Another technical development that is noteworthy is that the bull trendlines on the monthly charts of the US equity to Gold ratios associated with the secular bull market going all the way back to 1980 have been convincingly violated. For those readers that are monitoring the current value of the ratios relative to the respective trendlines, here are the trendline values for the month of Sept 2002. For the Standard and Poor's 500 Index to Gold Ratio, the secular trendline is at the 3.687 level. For the Dow Jones Industrial Average to Gold Ratio, the trendline is at the 31.016 level for Sept 2002.

US Equities Market

For the charts of several of the major US equity averages, my assertion has been that they were best interpreted as possible multi-year Head and Shoulders Top patterns. These patterns were decisively completed in the early July time frame, providing technical confirmation, and strong evidence that the US equity markets have significant downside potential over the coming months. I decided not to present charts of these indices, mainly because their structure is so similar to that of the Standard and Poor's 500 Index to Gold ratio shown above. (The main difference is that the August rebounds to retest the neckline have been stronger). However, here is a summary of measured price targets for some of the popular equity averages.

• For the week ending 12 July, the Standard and Poor's 500 Index closed at 921.39 to complete a 5 Year Head and Shoulders Top pattern on the weekly chart. The price target is 571.70 as measured from the neckline at the 950.68 level. The sharp rally from the July lows lifted the index to retest and slightly violate the neckline. Since then the index has declined, but further retesting of the neckline is possible. A move above the right shoulder high of 1176.97 would be required to negate the bearish interpretation.
  
  
• For the week ending 12 July, the Russell 3000 Index closed at 512.23 to complete a 5 Year Head and Shoulders Top pattern on the weekly chart. The price target is 309.48 as measured from the neckline at the 526.41 level. A move above the right shoulder high of 650.94 would be required to negate the bearish interpretation.
  
  
• My interpretation of the Geometric Value Line Index has been that it completed a 5 Year Descending Right Triangle Top pattern in Sept 2001. The index climbed as high as 384.01 in April 2002 before finally turning lower. While that rally violated the lower boundary of the pattern at the 340-ish level by a significant margin, the interpretation is still intact. The index fell sharply in July to a low of 249.24. The late July, August reflex rally raised the index to as high as 289.9, but the market has since turned lower. Note that this resistance area coincides with the area where the index found support in the fall 2001 sell off (the market traded as low as 289.48 on 21 Sept before rebounding). The price target of 226.38 is now not all that far away.
  
  

In keeping with the great importance I place on the study of longer term charts, I decided to feature the recent developments on the monthly chart of the NASDAQ Composite Index (shown below, the last bar updated through 20 Sept). While many equity investors still dearly love their technology and other NASDAQ holdings, Classical Charting is suggesting that their dedication, in times of sickness and health, will be thoroughly tested in the months and years to come. On 26 June, the NASDAQ first probed below the neckline of a possible 5 Year Head and Shoulders Top pattern at the 1399 level. The following week the market decisively broke down below the neckline. It fell to a low of 1192.42 on 24 July, and the violent rebound that followed raised the index to a close of 1328.26 for the month of July to complete the pattern. The measured price objective of this pattern is 372.15 (note that a logarithmic scale must be used, a negative price target is obtained when arithmetic scaling is used). A rally above the Jan 2002 high of 2098.88 would be required to negate this interpretation.

While I am absolutely certain that some of you will take an incredulous view of such a price target, here are a few thoughts to keep in mind. First, this is not a claim or an opinion, it is simply the price target obtained by a mechanical application of Classical Charting principles. Second, declines of such magnitude from bubble peaks are not without historical precedent. The Dow Jones Industrial Average traded as high as 386.1 in September of 1929. The bear market that followed took the index to a low of 40.6 in July of 1932, a staggering loss of just over 89%. Although I wasn't there, I can assure you that anyone who might have projected such a decline in 1929 would have been greeted with total ridicule. In a similar fashion, the Nikkei 225 has been in a bear market since 1989 and recently moved to a new low for the move, to levels not seen in 19 years. History is littered with examples of declines from bubbles that ended close to where they started from.

There are some caveats to consider with longer term price targets for major indices. Because of the manner in which the component stocks of an index are actively "managed", comparing the value of an index today to its value a few years ago is simply not an apples to apples comparison. In situations like the recent Enron and Worldcom debacles, the managers of an index are more or less forced to remove them from the index after their negative impact has been felt, creating a downward bias. On the other hand, there is always a voluntary rotation of components designed to "dress up" the index which clearly has a positive bias. How these factors will stack up in the future is unknown of course, but makes it difficult to get a truly unbiased picture over longer periods of time.

If you watch any of the financial news channels on television, (as I do for their unsurpassed entertainment value), you have probably noticed that the cheerleading designed to entice people back into the US equity markets has started to take on a tone of urgency, even desperation. This reminds me of a segment Andy Rooney did many years ago about the reams of junk mail that fill our mailboxes (part the "60 Minutes" television program broadcast here in the United States). I don't recall his exact words, but he said something like; "When you get a piece of mail like this, marked URGENT, you can be pretty sure that it is much more urgent for them, than it is for you." In the same spirit, getting the average investor back into the US equity markets is a matter that is a lot more urgent for corporate CEOs whose call options are now out of the money, than it is for folks like you and I. While humor can help make us feel better in distressing or uncomfortable situations, there isn't anything remotely funny (or long term bullish) about the US equity charts.

Gold Bullion

While proof reading my February update, bullion rallied through the $292 level to complete a 2 Year Head and Shoulders Bottom pattern. Basis the London fixes, the market rallied as high as the AM fix of $327.25 on 31 May for the move, falling a little shy of the projected price target of about $333. The market has clearly been in a corrective phase since then. In terms of the London fixes, it traded as low as the PM fix of $303 on 29 July although prices briefly dipped under $300 in the cash markets before turning higher.

While the overall tone of the bullion market has been improving, there is one more significant technical hurdle to clear before the long term trend can be declared to be bullish from a Classical Charting perspective. The period from late 1997 to the present is best interpreted as a possible 5 Year Rounding or Saucer Bottom pattern. The neckline of this pattern is at the $326.25 level as defined by the high reached in the September 1999 rally sparked by the announcement of the Washington Agreement. A decisive move above the neckline would complete this massive pattern with a measured price objective of $421. Note that some chartists may interpret this time period as a possible Double Bottom pattern. While I prefer my own interpretation, the distinction is not particularly critical as the measured objective is the same. Note that the neckline was slightly violated by the AM fix on 31 May of $327.25, but this out of line movement could hardly be interpreted as a decisive breakout. Given the somewhat choppy character of the advance to date, if we do get a breakout, I would not be surprised if the market were to "sputter" and retest the neckline from above before moving higher.

No doubt many Gold bulls are wondering when the current correction will be over. Markets often have a tendency to "shake out" investors through shear boredom, so I wouldn't be surprised to see this correction continue for several more weeks. However, I do see an encouraging development that hints that higher prices may not be far off. A possible Continuation Head and Shoulder Bottom pattern has started to form on the daily chart (not shown). The low of $310.6 in early July corresponds to the left shoulder, the low of $303 in late July corresponds to the head, and the activity since the recent high of $322.5 on 10 Sept corresponds to a partial right shoulder. Note that the market could fall back to the $309-$310 level without inflicting any damage to the interpretation. If the pattern were to evolve in a symmetrical fashion, the formation of the right shoulder would be complete in early October. Although it is too early to draw any conclusions, this evolving pattern certainly bears watching.

Stepping back to a very long term perspective of bullion, there was a noteworthy technical development since the last review. I have suggested that the best interpretation of the monthly gold chart (not shown) was a possible 21+ Year 3 Fan Correction pattern extending all the way back to the high of $850 made in Jan 1980. The strong thrust in late May 2002 carried prices above the $320 level to break above the 3rd fanline of the pattern (labeled by F3 in the above chart). The swing target of this massive pattern is an eye popping $7655 on a logarithmic scaled chart. Note that the July correction brought prices back down through the fan line. Conservative chartists will wait for prices to move above the price level associated with the contact point that defines the 3rd fan line for further confirmation before declaring the interpretation to be valid (the $416.25 level in this case). What might be the time scale of such a move? Unfortunately, fan patterns don't readily lend themselves to the estimation of this. However, if we use the bull market in bullion that preceded the Jan 1980 top for some type of guidance, such a move might take roughly 5 to 10 years to unfold.

Gold Shares

The performance of Gold equities in 2002 has been truly stellar compared to the broad US equity averages. Based on the 20 September closing values, the Geometric Gold and Silver Stock Index is up 110.8% year to date, while the Amex Gold BUGS Index is up 102.1% year to date. The Geometric Gold and Silver Stock Index completed a 2 Year Rounding or Saucer Bottom pattern in early February (weekly chart shown below). As measured from the neckline at 30.58, the measured objective of this pattern is 58.26. The market has already handily surpassed this price target as it traded as high as 63.75 on 4 June, which marked the beginning of a consolidation period.

I have slightly modified the stocks used in my Geometric Gold and Silver Stock Index since its introduction in my Oct 2001 article. Homestake Mining ceased trading on Friday 14 December, 2001 because it was purchased by Barrick Gold [sic]. On the close, Homestake Mining was replaced with the NYSE listing of Goldcorp, Inc. and the scaling constant was readjusted to maintain continuity of the geometric average. (When I originally chose the stocks to use for the index, Goldcorp was not really well suited to inclusion because until late 2000 there were several classes of shares). If the proposed purchase of Echo Bay Mines, Ltd. by Kinross Gold Corporation becomes a reality, my plan is to replace it with Harmony Gold Mining, Ltd. at the appropriate time.

The sharp correction in the Gold shares in late July caught many Gold bulls by surprise. In all honesty, I would have to say I was a little surprised myself. Going into mid-July, the consolidation up to that point appeared to be relatively orderly. The daily charts of the Geometric Gold and Silver Stock Index, the Amex Gold BUGS Index, and a long list of individual Gold shares appeared to be forming possible Symmetrical Triangle patterns (visible, but not marked on the weekly chart above). While this pattern can serve as a reversal pattern as it eventually did, it more frequently functions as a continuation pattern. Given this tendency, my bias was leaning more towards a consolidation that would eventually be resolved to the upside.

In general, I don't spend much time trying to find an explanation for why something like this happened. However, there is a lesson to be learned here. A possible explanation is that it was closely related to the extreme weakness in the general equities market at that time. Some investors may have over reacted, and sold everything in their portfolios. Another likely suspect is margin related selling, perhaps sparked by the plunging values of tech shares at first. In some cases, it may have even been brokers selling Gold shares from client's margin accounts to bring loans back to acceptable levels (they generally have the right to do this without your approval). One reason why I suspect this is because the large cap Gold shares that can be margined (those with share prices above $5), were most affected. Note also that the REIT sector, one of the few equity sectors other than Gold that has been in an uptrend for 2002, also suffered a very sharp and nasty correction (see the Morgan Stanley REIT Index for example). My motivation for suggesting this explanation is only to highlight the fact that sometimes external factors that we don't expect can appear out of nowhere. This should emphasize the importance of having a plan that includes a Risk Management component that will take over when our bias or expectations fail to materialize.

While some of the Gold shares are still feeling the sting of the sharp July sell off, many have recovered most, and in some cases, all of their losses. The table below summarizes some of the Gold shares that trade on North American exchanges that have since recovered to within 10% of their respective closing highs reached in late May, early June (based on 20 September closing prices). In those cases where a qualifying issue traded on both US and Canadian exchanges, I chose the one with better performance for the sake of brevity. (Issues traded on Canadian exchanges are obviously quoted in Canadian dollars). Please note that this list may be incomplete, as it was prepared using only those Gold shares that I regularly follow.

Based on this measure of performance, the star performer is clearly the Denver, Colorado based royalty company, Royal Gold (NASDAQ:RGLD). It has handily surpassed its May / June 2002 high by more than 20%. It is interesting to note that this list includes some "Juniors", as well as some of the popular unhedged producers that are already profitable at current bullion prices.

I had noted in the last update that the London PM Gold Fix to Amex Gold BUGS Ratio had completed a 6 month Flag consolidation formation with a swing target of a little less than 2.5 or so. That target was reached as the ratio fell as low as 2.198 on 28 May before rebounding. Note that the ratio traded as low as values slightly less than 2.0 in the late 1996 to 1997 time frame, when the market's attitude towards Gold and Gold shares was relatively optimistic (see the chart from my Feb 2002 update). The all time low for the ratio was 1.870 on 4 June, 1996 according to my records. Although the Amex Gold BUGS Index is relatively new, and the available history is somewhat limited, the fact that the ratio is getting somewhat close to the lower end of its recent historical range suggests that any significant rally in the unhedged Gold shares will need higher Gold bullion prices for such a move to be sustainable. Up to this point, the unhedged Gold shares have dramatically out performed bullion in terms of percentage gains. My feeling is that it is unlikely that this disparity will be as pronounced from here on out for the higher quality unhedged shares. This is not to say that the start of the next rally won't be signaled by the shares moving first. However, caution would be warranted if bullion fails to catch up after a reasonable period of time.

While there is evidence that the future performance of the quality unhedged producers will be more closely tied to that of Gold bullion, this is not necessarily the case for the universe of Gold shares in general. The weekly chart of the London PM Gold Fix to Geometric Gold and Silver Stock Index Ratio (show below) succinctly demonstrates this. This ratio, which uses a more broadly based geometric average of Gold shares, has also made a significant move in the direction of more optimistic valuations, but has more room to fall before recent historical extremes are reached. The share prices of many of the mid-tier and small producers, and exploration companies haven't moved up that much on a percentage basis relative to the profitable unhedged producers. For those with some risk capital, and the will to do some thorough homework, there are still many Gold companies whose shares could prove to be very rewarding if Gold bullion manages to break out from its huge multi-year base.

If bullion does manage to breakout from its huge base, the old proverb; "A rising tide lifts all boats", may prove to be apropos. However, it would indeed be reckless to blindly purchase shares of mid and small size Gold companies. There are several unique factors to keep in mind. Many of them are simply not making any money, so there are some rather prominent negative fundamental factors. In more practical terms, poor liquidity can adversely affect order execution. Fills on market orders, or buy and sell stop orders which become market orders when triggered can exhibit extreme slippage in some cases making them rather ill suited to anything but portfolios with longer time horizons. Another unique aspect of smaller Gold companies is that corporate executives and sometimes employees in general receive compensation in the form of shares or options. Since you can't buy food or pay the rent / mortgage with shares, there is a natural tendency for company insiders to sell some of their shares after a rise in the share price. Note also that smaller Gold companies often raise cash by issuing new shares which can sometimes be greeted negatively by the open market because of the obvious effects of dilution. When it comes to these companies, it is particularly important to avoid the temptation to allocate a large fraction of your risk capital to a single company. Do your homework, use some common sense, and avoid the temptations of greed.

Summary and Conclusions

Both the Standard and Poor's 500 Index to Gold Ratio and the Dow Jones Industrial Average to Gold Ratio ratios have completed massive 4+ Year Head and Shoulders Top patterns, providing technical confirmation that the trend in the ratios is now down. The bull trendlines on the monthly charts of these two US equity to Gold ratios, associated with the secular bull market going all the way back to 1980 have also been convincingly violated.

In terms of Classical Charting, the broad based US equity averages have completed major reversal top patterns, providing confirmation that the long term trend is now down. The trendlines on the monthly charts of the Dow Jones Industrial Average and the Standard and Poor's 500 Index associated with the entire secular bull market that began in the fall of 1982 have also been violated.

The short to intermediate term trend of the US equity averages are somewhat ambiguous at the moment. However, this may be resolved soon as the major averages are now approaching their lows of July 2002. If the July lows are decisively broken, another dynamic and emotionally charged move to the downside would be likely. If the lows are tested successfully, or only marginally violated, it is more likely that the market will consolidate further, bounded below by the July lows and above by the necklines of the top patterns, before a resumption of the down trend.

The final technical hurdle to be surmounted by Gold bullion is the as yet uncompleted possible 5 Year Rounding or Saucer Bottom pattern on the weekly chart. A convincing move above the neckline at the $326.25 level (basis the London fixes) is required to complete this massive pattern. The target of this pattern is about $421. A possible Continuation Head and Shoulder Bottom pattern has appeared on the daily chart. A completion of this pattern may provide the strength needed to complete the pattern on the weekly chart.

Given that the London PM Gold Fix to Amex Gold BUGS Ratio is now approaching the lows seen in the 1996 to 1997 period, it is likely that any significant breakout by the quality unhedged Gold shares will require a corresponding breakout in bullion for the move to be sustainable. If Gold bullion can muster a breakout from its massive base, some of the mid-tier and smaller Gold company shares will likely be the best performers on a percentage basis. Of course, the shares of these smaller companies also carry correspondingly greater risks.

John Peterson
<segel_flieger@yahoo.com>
23 Sept, 2002

Copyright © 2002, John Peterson, All rights reserved. This article may be freely distributed in whole.

References

1. Technical Analysis and Stock Market Profits, by Richard W. Schabacker, 2nd Edition, 1937, ISBN 0-273630-95-4
   
   
2. Technical Analysis of Stock Trends, by Robert D. Edwards and John Magee, 16-th Edition, 1987, ISBN 0-910944-00-8
   
   
3. Portfolio Management Formulas; mathematical trading methods for the futures, options, and stock markets, by Ralph Vince, 1990, John Wiley & Sons, ISBN 0-471-52756-4
   
   
4. Reminiscences of a Stock Operator, by Edwin Lefevre, 1985, Trader's Press, Inc., ISBN 0-934380-11-2
   
   
5. Market Wizards; Interviews with Top Traders, by Jack D. Schwager, 1989, New York Institute of Finance, ISBN 0-13-556093-4
   
   

Disclaimer

The above statements are personal observations and opinions, and should not be interpreted as investment advice or as a solicitation to buy or sell securities. The charts and data presented were derived from sources that were believed to be accurate. However, no warranty, expressed or implied is made as to their accuracy.

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