Chart Symmetry

DeBeers; US 30-year T-bond; Durban Deep; Gold Price

May 10, 1999

Chart Symmetry is designed around the observation that prices tend to change direction along certain preferred gradients. New readers are advised to read the first article in this series to discover how Chart Symmetry works. The link to this article is : http://www.gold-eagle.com/south_africa/regional_analysts/joubert020699.html

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. The scope for the analyst to 'do his own thing' and develop a pre-conceived pattern is therefore quite limited. The patterns that are shown in the analyses are inherent in the charts, but these are not the only patterns that can be derived.

De Beers in US currency – calculated from JSE close. Daily close. (Last = $23.95)

The chart shows the same bear channel, A-M, used previously. Channel X-Z have a gradient that is the direct inverse of that of line M.

The break above line A, followed by a return to A and subsequent rebound to resume the previous trend, is a good example of the 'goodbye kiss' that often takes place after a break from a key pattern – the bear channel A-M in this case.

The close on Friday 30th April was just short of resistance at line Y; Monday's close was a fraction higher at which point the price reversed lower, still a fraction short of line Y. Two Scenarios describe the possible development.

Scenario 1: The price reverses trend again, this time to break above line Y – just as it did on reaching resistance at line B not so long ago.

Scenario 2: The falling trend extends further, either to give another goodbye kiss on line A or to use line Z as a springboard for a new attempt on resistance at Y. This would establish channel X-Z as a new bull channel.

Preference: From just before Christmas last year, DeBeers had gained 110% in US dollar terms to reach resistance at Y. This is an excellent performance and perhaps a correction is now due. While a new reversal soon, as speculated in Scenario 1, cannot be ruled out, the reversal at Y seems to favour Scenario 2. Over the medium to longer term, establishment of the bull channel X-Z will be bullish for gold shares too.

US 30-year Treasury bond - price index in Yen. (Last = 20.76)

The weekly chart of the price index in Yen of the US 30-year T-bond has broken below support at line I.

Two master lines, M and M1, are used for this analysis, with line I the inverse of M and F1 a steeper derivative of M1. This means F1-M1 is a steep megaphone.

The break lower took place practically at the cross-over of I and M1.

Scenario 1: The price index extends the break through the cross-over in a sustained and steep move downward, which is typical of such cross-over breaks.

Scenario 2: The price index reverses direction and moves higher, back to test the new resistance at line I. Perhaps to complete a goodbye kiss on I?

Preference: Breaks from megaphones tend to be sharp and volatile, and so are breaks through cross-overs of major trend lines. Both events here happened simultaneously and this indicates further volatility ahead in either the dollar-yen rate or the yield on the 30-year T-bond or both. Since a weaker dollar is likely to trigger a sell-out of foreign investments in the US, including investments made through the yen-carry, a weak dollar and a weak 30-year bond may well go hand in hand. The break back into the 11-year symmetrical megaphone I-M should also add to the volatility. Scenario 1 is preferred.

Durban Deep in US Currency. Daily close. (Last = $2.17)

After a good increase of 124% late in 1998, the price of Durban Deep entered a gradual bear trend, well contained in bear channel M-P, that eventually carried the price below key support at line F.

The lower half of the chart shows the volume analysis for DRD, using the JSE turnover figures. Blue bars are the turnover or volume MACD; pink bars are the price MACD. The story this tells is a little disturbing.

While many other gold shares showed substantial increases in recent weeks, DRD lagged. In the previous report, the dPdV chart of Durban Deep was analysed in detail, and the conclusion was that there might be a large seller or sellers who take advantage of every increase in demand to reduce their holding in Durban Deep.

After the large sell-off at B, demand increased on a number of occasions (C-F) and every time the price either failed to react at all or the increase soon fizzled out – evidence that demand exceeds supply and probably an indication that there is a large pool of shares waiting to be sold.

Demand at the recent low in the price (G), had the price moving a little higher, but it slipped again late last week, mainly on the lower gold price. However, new demand, of which an early sign was seen last week, have been sustained and the turnover MACD has moved consistently higher above the base line – the early part of a buy signal. What is now needed to confirm the buy warning, will be an increase in the price to carry the price MACD also above the base line, still on good volume.

The chart uses the dPdV indicator. New readers can refer to the article at this link: http://www.gold-eagle.com/south_africa/regional_analysts/joubert042099.html for information on how the indicator is generated and interpreted.

Scenario 1: Turnover keeps on increasing until the price reacts to good demand and the MACD also breaks above the MACD base line to confirm the early buy warning. The price then moves higher to reach as far as the top of the channel at line M.

Scenario 2: A new surge in supply quenches demand again and the price fails to respond further. It remains below F and slips into the lower half of the bear channel.

Preference: With POG under new pressure, the temptation is to opt for Scenario 2.

However, turnover has so far remained quite good, as indicated by the volume MACD. This implies that the large seller may have become less aggressive, waiting for the price to rise further before selling heavily again, while demand is picking up to a level where the supply is easier to be absorbed. What happens this week, with buyers probably quite wary after the Bank of England announcement, will reveal the future behaviour of Durban Deep.

If demand remains high, a price break-out to the upside to bring Durban Deep in closer alignment with other gold shares, becomes quite possible. If demand subsides again, the picture remains bleak.

On the basis of good sustained demand last week, Scenario 1 gets the nod.

Spot Gold price. Weekly: Friday PM fix. (Last = $282.40)

This is again detail from a longer term chart that was shown previously.

Master line M is the top resistance line spanning the highs of 1987 (off scale on left) and 1996. M-D is the 12-year bear channel. Z-X is derived from M and is the steep bear channel of the past 30 months. Line I is the inverse of M.

The break higher from the steep bear channel at first failed to hold, as if POG needed a rebound off support at line I to complete a good example of inverse symmetry – i.e. using the inverse of the support line, D, of the recent bear trend as support for a new bull trend – before it could resume the rising trend. The Friday PM fix above support at line I, despite the BoE announcement of gold sales, is quite promising – so far.

Scenario 1: A break below support at line I and perhaps even to within bear channel Z-X follows as the market turns more pessimistic on prospects of increased gold sales by central banks.

Scenario 2: Support at line I holds firm, despite the recent bad news and any further attacks on POG, to lay a foundation for a new bull market that would be ready to take off after a weekly close above resistance at line C.

Preference: Scenario 2 – for as long as support at line I holds. To be confirmed at line C.

Previous charts:

US 30-year T-bond: The yield has broken higher on the weekly chart of the yield, shown two weeks ago, where market support around 5.60% has kept the bear trend on hold for some weeks. The break upwards through 5.6% has now been extended to 5.82%. While a recovery to give a goodbye kiss on the old market support level at 5.6% remains a possibility, this is beginning to seem less likely. Medium term prospects for the US 30-year are bearish, with a target at about 6.18% - with some psychological support at 6.0%.

Dow volume: Turnover on Wall Street last week remained high, dipping a little on Friday to just trigger a move to lower levels for the volume MACD. Further development of a dPdV top pattern requires that volume should remain at or above 1 billion shares/day while the Dow itself should level off and top out. A further rise for the Dow on lower turnover could issue warning that the bull market has another leg before the (final?) top.

Previous Chart Symmetry analyses are in the Gold-Eagle archives and are accessible through the Index of Research/Top Analysts on the Gold-Eagle home page, or simply click here: http://www.gold-eagle.com/research.html

Gold was first discovered in U.S. at the Reed farm in North Carolina in 1799, a 17-pound nugget.

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