Anatomy Of A True Bull Market
Sol Palha
Only in quiet waters things mirror themselves undistorted. Only in a quiet mind is adequate perception of the world.
Hans Margolius
When Gold and other precious metals start to look like this, we can finally state that we are on the verge of a true bull market. I have put up several charts of oil priced in different currencies and the story they tell is rather interesting.
Drawing in channel formations as you will notice is something of an art and so don't get worried if your channel formations appear to look slightly different. The most important concept is to understand the value behind channel formations.
First channel formation broke in September 2003. Drawing a trend line from this break usually reveals when the correction is going to end. Then we proceeded to form a secondary lower channel. One way to determine if the break out from a channel is valid is to draw a trend line; if the break out is valid it will hold above the trend line, if not it will break below and carry on trading sideways. If you notice we had several false breakouts; All these false break outs could have been spotted with simple trend line analysis. I am not going to put all the small trend lines in as it will clutter up all the charts and end up confusing everyone even more.
What you will notice when you look at all the graphs below is that oil has been rising in every currency and therefore it is in a true bull market, unlike the precious metals sector. Once more we think this is a precursor to what is in store for the precious metals sector in the future. That is why we try not to scream and focus on all the fundamentals that quite clearly illustrate the dollar is dead and that Gold should go to the moon immediately. That's where the classic gold bugs make their biggest mistakes. Most of them just focus on Gold as being the only currency. While that is true, they will not stop for 5 seconds to think that 90% of the world has no idea that Gold is a currency. Another major error is that most of them have not bothered to price Gold in other currencies to see if it is really in a true bull market. In this sense they are just as bad as the average Joe on the street, because they are pricing Gold in a depreciating currency. If this is the basis for a true Gold bull, we should have all screamed that Gold was in a super bull market, when it took of like a bullet in Argentinean pesos a few years ago.
Oil on the other hand has taken off in every major currency and the charts below very nicely illustrate this point. I will put in a few comments below some charts, but they more or less speak for themselves.
We expect oil, which is priced in Swiss Francs to test the main up trend line.
This picture is a little more interesting then the rest. Oil has just broken out of a channel formation but was unable to hold onto the gains. It will most likely test the main up trend line and then attempt another break out.
It broke out to fast here and so a pull back to the main trend line would be normal.
Whenever you take off very sharply, you are bound to pull back to the main trend line. Sharp moves up and down are always followed by reversals and then slower moves in same direction. In other words oil will probably lose value in terms of the British pound over the next several weeks and then resume the upward move surely but slowly.
This truly indicates that oil is in a true bull market, because we have priced it in the ultimate currency "GOLD". A move back to the main trend is to be expected and then a continuation of the upward movement.
We had a vertical move here and so a pull back is to be expected followed by resumption of the up trend but in a more controlled manner.
Same story here, the move up occurred to fast and in to short a period of time. So it would be normal to expect a nice pull back and then a continuation of the upward trend. Also notice the three trend lines once again indicating an upward move was imminent.
Finally we decided to price oil in terms of the Dow and once more you can clearly see that oil is winning.
Conclusion
Oil appears to be in a true bull market as it has risen in value in every major currency. Like all markets it must correct to build up strength for the next leg up. We stated last week and the week before that Oil was showing the classic signs of a short-term top and we expect oil to slowly but surely correct to the main up trend line (currently at the 32-34 price levels). Natural gas to is in true bull market and is also slowly correcting just like oil. These charts quite clearly illustrate that 10-15 dollars a barrel are a thing of the past and something that we most likely will never ever see again.
When the precious metals sector starts to behave in a similar fashion, then we will be able to say that they are in a true bull market. This does not mean one cannot make money playing the precious metal sector. On the contrary, the only thing that will change is that instead of making decent gains we will be taking home insane levels of profits once we are in the true bull phase.
One day the precious metal sector will react in the same way and those that are not on board will miss the ride of the ride of a lifetime.
The difference between a mountain and a molehill is your perspective.
Al Neuharth American publisher, Founder, USA Today
© 2004 Sol Palha
TACTICAL INVESTOR
www.tacticalinvestor.com
info@tacticalinvestor.com
23 June 2004
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