Chart Symmetry

Randgold & Exploration; Durban Deep; Weekly POG; Nikkei 225

March 22, 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 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 found are inherent in the charts, although many more patterns can be identified.

Nikkei 225 Index. Weekly close. (Last = 16379)

The main features of this analysis are the bear channel C-M; a shallow bull channel, X-Y, and the important symmetrical megaphone, X-I, with line I the inverse of X. On Friday the Nikkei closed right at old and significant resistance at line M.

It is possible that the 17% increase in the Nikkei this month could be a concerted effort to place Japanese banks in a more positive position by financial year end on 31 March. They are heavily invested in Japanese stocks, reportedly at an average cost of about 14000 points. Any unrealized profit they could show on 31 March can be used to augment their capital reserves, which have suffered badly as a result of writing off bad loans. Recent intra-day behaviour of the index also indicates that there is a campaign of trying to obtain a strong close every day, presumably to kick-start the next day's trading.

According to the above analysis, which shows the Nikkei right up against resistance that goes way back to the all time high in late 1989, there is some doubt whether this attempt to ramp the Nikkei for the benefit of the banks is going to be successful.

Scenario 1: The Nikkei fails to break higher through resistance at M and turns bearish towards support at line I.

Scenario 2: After a break through long term resistance at line M, the Nikkei extends the current bull market towards line X, hesitating only briefly at resistance at line Y.

Preference: When a price or index reaches very obvious support or resistance, it is better to assume that the support or resistance will hold rather than to (wishfully?) favour a break through the trend line. In this case, therefore, Scenario 1 has to be preferred, until proven wrong by a sustained break through M. A reversal at line M into a new bear trend – if that happens – will be bad news for Japanese banks and could even cause ripples on a global scale.

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

After showing such good promise last week, the gold price succumbed to a series of verbal lashes to end the week right at support from the steep bear channel, Z-X, from which it had only recently broken. Note that the scale of the chart has been reduced from the chart shown last week in order to provide greater detail of recent events.

The return to the boundary of the 30-month bear channel is the second such event since the price first broke marginally above line X early in February. Events like this reversal to reach X again happen quite frequently after a break from a major chart formation and are known as a 'goodbye kiss' on the boundary of the chart pattern. Two consecutive goodbye kisses – as might well be happening here, provided the gold price reverses higher again – are less frequent, but such double goodbye kisses do tend to occur when really strong patterns have been finally broken.

Scenario 1: The break from channel Z-X is the beginning of a sustained and quite steep rising trend that soon (a matter of a few weeks) breaks above resistance at line C, and then also at the $300 level, to test resistance at line B.

Scenario 2: Gold has failed to extend the rising trend. It reversed direction and is now expected to continue moving downward along line X for a third test of support at line D.

Preference: Scenario 1. This simply has to be so, given the long battle – since October 2nd – to manage the break upwards from channel Z-X! An upward reaction off support at line X this week to end the second goodbye kiss would be promising.

Randgold in US dollar (ADR). JSE close. (Last = $3.38)

A jump of 32% in the calculated ADR price of Randgold in one week is positive, more so since the price did not close at key resistance that could end its rise. One Scenario last week projected a break at the cross-over of lines C and X, but the price first retreated to find support at line D. The sharp rebound off D had the desired effect of achieving the break higher, but delayed this to just beyond the cross-over.

Note that all the lines except F have the same gradient. Two patterns of interest are the wedge Y-F and the megaphone B-F. The break up from wedge Y-F took place on leg 4 of the pattern – a premature break from the chart formation, and the kind of event that generally is followed by volatile price movement, as happened here. Megaphones, such as B-F, are strong formations and also tend to contain volatile price behaviour.

Scenario 1: The price reaches strong resistance at the top of megaphone B-F and reverses direction to fall steeply, back to support at C at least.

Scenario 2: The price breaks higher through key resistance at line B – after some hesitation there? – to extend the bull trend towards line A.

Preference: As mentioned above, strong pattern boundaries have to be assumed to hold until definitely penetrated. Here the megaphone B-F is probably the dominant pattern and so resistance at line B should be expected to hold. Thus, Scenario 1.

Note that there may well be a reversal for a goodbye kiss on line C, similar to what happened after the break higher through line D, before the rising trend resumes. Key support is therefore at line D.

Durban Roodepoort Deep in US dollar. (Last = $2.35)

The daily chart of the dollar price of Durban Deep clearly shows the significant break through line F2, which featured so prominently as long term resistance in analyses shown here earlier.

Last week the price had closed right against resistance at line C. The resistance held and the price reacted sharply downwards to find support at line D for the third time in recent history. The question now is whether support at D will hold again or whether the price will move lower to test support at line F2.

Scenario 1: Support at line D holds and the price reverses trend again to test resistance at line C for the second time in a few weeks. This time round a break higher through line C is expected.

Scenario 2: The price moves lower to test support at line F2 in what could become a goodbye kiss on the large megaphone, M-F2. A reversal there would be bullish.

Preference: The break higher from megaphone M-F2, after the price was squeezed right into the corner of F2 and D, should signal the start of a strong and sustained bull trend. Technically the medium to long term bull trend is still on; the real question is only whether the price rebounds off support at line D or only after a goodbye kiss on F2.

Comments on previous charts: Last week the strong Dow Jones and a weaker gold price resulted in a break above the wedge on the Dow in oz goldchart. The gold price of the Dow reached resistance at the steep master line, now with a value of 35 oz of gold. The close Friday was below this level, but the Dow in POG has to decline to below the value of the upper boundary of the wedge formation at 34.04 oz to signal a new bear trend.

De Beers in US dollar broke above previous resistance , now at $17.07. This was against expectations and is bullish while new support at $17 holds.

In every cubic mile of sea water there is 25 tons of gold