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Chart Symmetry

US 30-year Bond; Durban Deep; Weekly POG; Harmony

March 30, 1999

Chart Symmetry is designed around the observation that prices tend to change direction along certain preferred gradients. Different preferred gradients are linked though the Fibonacci ratio. When a preferred gradient has been identified and confirmed, it and its derived gradients can be used to search for patterns that help to describe the shape of the chart, which then enable the analyst to anticipate certain developments.

The prices shown for the lines are the values of the lines at the next time interval after the chart close. It is not a prediction that the price will suddenly move to reach that line overnight, but provides the reader a measure of the move that could take place if the price pattern does develop in the direction of that trend line. The steeper the line, the greater will be the change in the line value over time.

The key point to remember throughout is that the gradients of all secondary lines were derived from the gradient of the master line. There is thus limited ability for the analyst to 'do his own thing' and develop a pattern that fits his preconceptions. The patterns that are shown in the analyses are inherent in the charts, but these are not the only patterns that can be derived.

US 30-year Treasury Bond. Weekly close. (Last = 5.594%)

The main features of this analysis, the same as the one used some weeks ago, are the long term bear channel M-C, the much steeper bear channel, X-Y, and the symmetrical megaphone, I-C, where line I is the inverse of M..

Previously, the break above the steep bear channel that had just taken place was seen as bearish for the US bond market. The yield reached almost to market support at line B before turning firmer again. New weakness now has the yield approaching line B again.

The correspondence between this analysis and that of the weekly gold price is striking. In this case, what happened after the break from the steep channel falls within the expected pattern of price behaviour. The move higher on the break from X took place without the quite common return to X after the break – the goodbye kiss – but this is not mandatory.

Scenario 1: The yield on the 30-year bond holds the market support at line B, reverses direction and turns bullish again.

Scenario 2:. The yield breaks higher through market support at B to extend the new bear trend towards line A.

Preference: After a break up from the medium term bull channel X-Y (20 months), the yield is expected to move much further than market support at line B – most likely at least to line A, currently at 6.23%. Therefore, Scenario 2. Bearish for the medium term, even though it may require a week or three to effect the break through B.

Gold Weekly: Friday PM fix. (Last = $283.70)

After showing such good promise earlier and even holding right on support 10 days ago, the gold price succumbed to what is reported to be heavy selling by funds to end last week again within the steep bear channel of the past 2 years and more. As mentioned above, in the discussion of the US 30-year, this kind of event is rare. Breaks from major patterns may experience a return to the pattern – the goodbye kiss – but breaks back within major patterns are quite rare.

Here the break back below X is bearish and the only technical ray of hope is the support offered by line I, the inverse of master line M. It is often found that the inverse of the support line of a bear trend becomes the support line of the next bull trend. Line I is the inverse of D, the bear support line, and may well become the support line from which the bull trend takes off – now that the onslaught has seen gold back below support at X.

Scenario 1: Gold bounces from support at line I – or perhaps just a fraction short of I – to begin a rising trend that reaches and breaks above resistance at line C and at the $300 level, later to test resistance at line B ($326.3).

Scenario 2: Gold failed to maintain the rising trend and has broken back into the steep bear channel Z-X. It now remains in the bear channel for a third test of support at line D.

Preference: Optimism for gold has to wait for a break above channel Z-X again. This may first require a Friday PM fix right at line I to get the full effect of a rebound of support. Last Friday's fix was well within the 0.5% accuracy typical of weekly charts, but since line I has a short base line even the 0.28% gap between Friday's PM fix and line I might still be narrowed further this week with a PM fix closer to $292.20.

Wait to see if this Friday's PM fix – or else next week's – breaks from between X and I, which should reveal the direction of the near term trend.

Harmony in US dollar. Calculated from JSE close. (Last = $4.66)

The price of Harmony in US dollar shows two formations of interest – the large triangle, I3-B, and the wedge (strictly a pennant) F3-B. The price is on leg 3 of both the pennant and the triangle. All lines are derived from master line M, which is the support line of the latter part of the steep bear market that ended with the deep low in June 1998.

Since the two patterns developed within a bear trend, and because they are typically continuation patterns, normal development would be for leg 3 to complete with a move lower to line B, followed by a rising trend that reaches either line I3 or line F3 to complete the fourth leg of one or the other pattern. Much later the price should break below line B to continue the bear trend.

A first indication that the triangle & pennant will not be acting as continuation patterns would be if the price breaks above line I3 to break from the triangle – later to be confirmed at F3. This can happen either after a move lower to line B to complete the third leg of both patterns, or from a rebound off support at line A – which would be a more bullish development.

Scenario 1: The price rebounds off support at line A to break higher through resistance at line I3. Bullish, with F3 as first target.

Scenario 2: The price breaks below line A to test support at line B – probably with a trend reversal at line B, and only a small chance of breaking lower now.

Preference: In principle, Scenario 2, which calls for the third legs of the triangle and pennant to complete. The signal for this Scenario will be a break below line A. Any rebound off support at A must break above I3 before a bullish signal is confirmed..

Durban Roodepoort Deep. Calculated in US dollar from JSE close. (Last = $2.24)

The daily chart of the dollar price of Durban Deep clearly shows the significant break through line F2 – the strong trend line that featured prominently as long term resistance in analyses shown here earlier, when the price was squeezed into the corner between F2 and D.

However, the subsequent trend reversal at resistance at lines C and F3 was bearish. Ten days ago, the support at line D had held for the third time in recent history, but last week the price broke below this important trend support.

Scenario 1: Support at line F2 now holds and the price moves higher again to break back above line D in a new bull trend. A move down to line F2 could become a goodbye kiss on F2 after the recent break higher. Such behaviour occurs quite often after a break from a major pattern – as we saw on the weekly gold price. For gold the break below the top of the bear channel is a rare event, but gold weakness could fit in with a goodbye kiss here on F2 – top boundary of the very large megaphone M-F2. Bullish, soon.

Scenario 2: The price breaks below support at line F2 to begin a new bear trend.

Preference: Megaphone M-F2 is a really major formation, as can be seen from the struggle to break higher through F2. Now, a goodbye kiss on the upper boundary of the megaphone at F2 would make Chart Symmetrical sense. Scenario 1.

Comments on previous charts:

De Beers in US dollar has broken above previous resistance at $17 to reach almost $19 on Friday. Next resistance is at $20.25 and $22.60.

Randgold could not sustain the steep rise to R7.00 on the JSE of 10 days ago, but fell back to around R5.50, in line with the US ADR market. ADR support is at $2.60 and $240, with the $2.60 support as quite significant.

The Dow in oz gold closed last week at 35.1 oz. This is right at strong resistance at 35.15oz. Key support is now at 34.08 oz.

The volume of all the gold ever mined can occupy a cube 63 feet on each side.
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