Robert J. Cote, Jr.
December 3, 2006
Cracking the Code: AscensionThe moment Thirdeyeopentrades has been watching for finally arrived at Friday's close of the week's session in the $XAU. "Cracking the Code" signals that a sustained precious metals shares upward leg for an undetermined length of time has begun in the $XAU, although it has yet to register on the $HUI and $GDM. So, we'll watch the other indexes very closely but are reasonably confident this weekend that it has begun on the $XAU.
"Cracking the Code" was never intended to catch "the bottom" as its beauty lies in its uncanny ability to offer technical evidence of a leg upward has truly begun. Since the beginning of the bull market to date, it has yet to fail. The key requirement for identifying the signal is that one must wait for the week to complete.
Let's review "Cracking the Code" in the event there are new readers.
- The MACD crosses up and over.
- Price crosses up thru resistance.
- Resulting in a crossing up thru resistance in the $XAU:$GOLD ratio.
"Cracking the Code" is a simultaneous signal whereby all three conditions are met within a three week time frame and measured as such following a weekly close once the chart updates for the week. How far will the leg go? "Cracking the Code" doesn't know, but there is another signal in the $XAU chart that might provide such a clue.
Let's present the chart, shall we?
As you can see, all three requirements for "Cracking the Code" have been met with breaks thru resistance on all three metrics and are indicated by the vertical rectangles at the far right side of the chart above.
You'll notice a green dotted line extended from the 5-Wave bullish descending wedge (from wave 1 thru wave 4) up to the top of a red channel line. That pattern is a Wolfe Wave and helps one forecast a price target up out of the wedge. We're estimating somewhere in the 185 area, give or take a few points. Price could fall anywhere a bit short of that target up to around 210 if the move extends. Depending upon whether or not the move extends, the reactions can be severe if the extension is significant, so keep that in mind. There's a reasonably strong floor at the 110-125 area for future reactions downward.
If you're a gold sector trader you know how this works. Nothing goes up forever and the sector's sharp reactions can practically make one's eyes bleed when you're holding long.
Now, before you get too excited (we know how that feels), please be aware that for up to 3-5 weeks following the elicitation of "Cracking the Code", one can expect some downward pressure.
Occasionally the price falls below the price at the breakout area (around 142 in this chart). The bottom line is that once "Cracking the Code" elicits, one can expect a sustainable upward leg.
Once again, "Cracking the Code" is a reassuring technical sign that the move has in fact begun. Those potential initial pullbacks after the launch of "Cracking the Code" can provide opportunities for going long or adding to our core position.
So, sit back and enjoy the ride! Now that "Cracking the Code" is here and so long as the black MACD line remains over the grey MACD line, the leg upward is intact.
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