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XAU, The Big Picture
Steven Swink
Goals:

The goal is to develop a working scenario of the XAU's behavior, illustrate it, and make some general observations and projections of the most likely future path based on current trends.

Assumptions:

  • Gold is in a bull market
  • XAU is in a bull market
  • The trend, patterns, cycles and behaviors will continue as is (until they do not)

Monthly Chart:

Pattern: Trend Channel with embedded triangles. Triangle tops are formed by speedlines from 1996 XAU top at 155.. Triangle bottoms are formed by trend channel support.

Behavior (starting from channel resistance):

  • Sharp red fall from channel resistance to channel/previous speedline support
  • Long blue rise from channel support through previous resistance from speedline/triangle top and previous high to new high at channel resistance (and set up new speedline which is now resistance for 12-14 months)

Weekly Chart:

Weekly Behavior (starting from channel resistance):

  • (Red decline) Fall from (red) Channel Resistance to Channel Support/Triangle bottom (dark green)
  • (lt. green advance) Rise to (pink) Mid-Channel resistance/Triangle Top
  • (pink decline) Fall to (dark green) Channel Support/Triangle Bottom
  • (dark green advance) Rise from channel support and breakout from Triangle/Rise to new highs at (red) Channel Resistance.

Daily Chart:

(All charts courtesy of www.bullstool.com/bullstools )

CONCLUSIONS -

Trading:

  • Always distribute/sell channel resistance
  • Always accumulate/buy channel support
  • For the first 12 months after hitting channel top, distribute/sell minor resistance at triangle top/speedline.
  • Always lighten up when the commercials get massively short silver and gold.

Stock Selection:

  • You should be all in cash or short at the channel top.
  • In the first 12 months after going to all cash, the large/mid cap semi-reliable companies will outperform, and should be purchased when the XAU is at/near support.
  • Once 12 months have passed, the HUI, mids/juniors and silvers should outperform, and should be purchased when the XAU is at/near support

Current Outlook:

While I'm not 100% the final lows are in, I am reasonably confident that the XAU will hit 150-160 in September/October this year.

Very Long Term Objectives:

Sept/Oct 2004…XAU 105-115 (HUI 240-260 - targets achieved)
Dec 2004/Jan 2005…XAU 85-93 (HUI 180-200 - targets achieved)
Sept/Oct 2005…XAU 150-160 (HUI 400-440)
Q1/Q2 2006…XAU 100-115 (HUI 225-260)
Q3/Q4 2007…XAU 210
Q1/Q2 2008…XAU 155
Q3/Q4 2009…XAU 310


Steven Swink
More SMSC's Charts charts may be seen at:
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID667551

25 January 2005


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