The analysis below has been made using the principles of Chart Symmetry, a system for analysis that was developed by a late colleague, Johan Pretorius, and myself during the late 1980's. After his death in a vehicle accident in 1992, I carried the development further to where it is now a comprehensive system for analysis.

Chart Symmetry is designed around two observations that Johan and I had made:

1. Using software that we developed, capable of drawing very accurate trend lines, we discovered that prices do not execute reversals at random, but tend to change trend or direction along certain preferred gradients. Quite a number of preferred gradients can be identified on each price chart.
   
   
2. These preferred gradients also do not occur at random, but share a relationship through the Fibonacci ratio, i.e. once one preferred gradient has been identified, other preferred gradients can be derived by applying the Fibonacci ratio to the known gradient, to result in either a steeper or shallower gradient. The transformation can be repeated on the new gradient to generate a whole fan of preferred gradients that can be recreated from any member of the set. If one gradient has been derived from another, they are said to be related, as members of the same family of gradients.
   
   

As just one point of interest: it turns out the sides of most occurrences of the traditional chart patterns – wedges, pennants, triangles and megaphones – are members of the same family, or related. One boundary of the pattern can be derived by one or more gradient transformations of the gradient of the other boundary. Exceptions to this observation are quite rare.

Analysis is performed by generating one line on the chart through two chart points. The gradient of this master line is then used to generate additional trend lines, each from only one point on the chart, that are either parallel, inverted or have a derived gradient. If these lines provide a good fit, it serves as confirmation that the master line is indeed a preferred gradient. The search is then continued to identify chart patterns – channels, wedges, etc – that can assist the analysis.

From knowledge of how the price tends to behave within these patterns, it is possible to anticipate its behaviour and to accurately identify points where patterns could be broken.

In the analysis of the gold price weekly chart below, the master line, M, was generated as the uppermost resistance line between the highs of December 1987 and February 1996. The gradient is determined arithmetically from the price at those points and is there fore very accurate. (Not all good master lines lie between extremes on the chart, as in this analysis, and the search for a good master line can often take a good deal of time.)

Lines A, B and C are exactly parallel to M, generated from a single point on the chart towards the middle or left hand side of the price history. Line F2 is the second steeper Fibonacci derivative of the gradient of M. Lines X, Y and Z, all parallel, are the third steeper derivatives of master line M, i.e. the gradients of these lines result from applying the Fibonacci ratio three times to the gradient of M.

Two channel systems are identified: the main bear channel, A-C, which shows good support on two recent occasions, and the steep bear channel Z-X, that has been in place since May 1995.

There are also two large wedge formations. The traditional wedge consists of 5 legs before the break occurs. Our observation is that when a wedge or triangle breaks prematurely, i.e. on leg 4, the subsequent move in the price is steeper that usual and sustained for longer. Gold, for some reason, often fits 7 legs into a wedge or triangle – and does so from long term to intra-day charts.

The first one, C-F2, consisted of 7 legs before the steep break upwards through F2 to begin the steep 1993 bull market. Leg 1 of this wedge is already partially off-scale on the left. Legs 4 and 5 missed reaching the trend lines by about 0.5% - the degree of accuracy that is accepted to apply to weekly charts using Chart Symmetry. (If these two almost-completed legs are excluded from the count, the break took place on the usual leg 5)

The second wedge is more recent – within C-X gold has completed leg 3 by reaching line X, 17 weeks ago (2nd Oct), and has since crept down, hardly out of touching distance of resistance at line X. On a few occasions intra-week trading moved higher than the value of line X at that time, but such moves can be disregarded if the Friday PM fix returns below the resistance level.

The values on the chart indicates what the price value of the different trend lines will be on Friday. It can be seen that a PM fix above $288,20 is needed to break upwards from channel Z-X. The next level of resistance can be expected at line B and then, of course, the psychological $300 – the water line of the Admiral's ship (with apologies to Curious, whose contributions to Gold Forum and the responses thereto I enjoy very much – but only after I started to make sense of the codes!)

Normal development of wedge C-X calls for a move down to line C to complete leg 4 of the wedge - which could perhaps result if the Admiral and his cohorts really succeed with a major broadside (Tx Curious!). However, in view of what has happened earlier this week, I might begin to bet on an abnormal or premature break on leg 4 – perhaps as soon as this Friday (5th).

Technically, such a break should clear resistance at line B and the $300 level quite easily to reach resistance at line A soon after. The medium term target would of course be the top of channel A-C at about $385.

6 February 1999

© 1999 Daan Joubert
All rights reserved.