Chart Symmetry

DeBeers; Durban Deep; Weekly POG; Harmony

April 7, 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.

De Beers in US currency – calculated from JSE close. Daily close. (Last = $19.46)

The chart shows the same bear channel used some weeks ago. Line I, with a gradient that is the direct inverse of that of line M, has been added. Note that the spacing of the bear channels is quite regular – a common feature of preferred gradients.

Scenario 1: The price reaches resistance at line I and begins a bearish correction, back down to support at line B.

Scenario 2:. The rising trend continues, perhaps breaking higher through line I, perhaps only following that line of resistance higher, until strong resistance at the top of the channel at line A is reached.

Preference: Turnover in DeBeers last week (on the JSE) showed a consistent increase, and with the rising price it reveals substantial demand and eager buyers. Any hesitation in the price trend now would be an indication that supply is beginning to balance demand, and that could be a warning signal that the current run has reached its limit.

That may well come into play at the resistance present along line I. What happens there – either a reversal at about $22.25 or a continuation of the rising trend – should reveal the near to medium term trend. For the time being, the analysis favours Scenario 2.

Gold Weekly: Friday PM fix. (Last = $280.50)

This is again the latter part of the 11-year bear channel M-A-B-C-D, showing the detail of the steep bear channel, Z-Y-X. Line I is the inverse of the shallow bear channel, so that D-I is a symmetrical V. The gradient of the steep channel is derived from that of line M.

The gold price broke briefly above the steep channel, but then broke back below X to find support at the inverse line, I, where it has been the past two weeks. The pointy inverse Head & Shoulders that developed in the symmetrical angle between lines D and I now waits for a move higher to complete the right shoulder.

Various comments at the forum and in e-mails earlier made reference to the developing H&S pattern and anticipated the decline in POG during the past two weeks.

Scenario 1: Gold bounces from support at line I – or perhaps first fixes a little closer to the line – to begin a rising trend that reaches and breaks above resistance at line X, and later also at C and the $300 level, moving higher to test resistance at line B ($326.1).

Scenario 2: Gold has failed to maintain the rising trend and has broken back into the steep bear channel Z-X. A break below support at line I has gold moving lower for a third test of support at line D at the bottom of the bear channel.

Preference: While a natural optimism with respect to gold makes Scenario 1 the automatic choice, it all hinges on support at line I holding firm and the price breaking higher from channel Z-X again to complete the right shoulder of the H&S pattern. On the other hand, a Friday PM fix more than about $1.50 below line I, say below $278.0, would be bearish with a move down to line D becoming very likely as per Scenario 2.

Scenario 1 is preferred, while support at line I holds.

Harmony in US currency. Calculated from JSE close. (Last = $4.70)

The price chart 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. This should then be followed by a rising trend that reaches either line I3 or line F3 to complete the fourth leg of either of the two patterns. After a new reversal there, the price should move lower to 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 the more bullish development The latter seems to be happening with the move higher off line A last week..

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

Scenario 2: The price reverses direction again to break below line A for a test of support at line B. A trend reversal at line B is then expected, with only a small chance of the price breaking lower.

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. The new rising trend on the rebound off support at A has to break above I3 before a bullish signal – and therefore Scenario 1 – is confirmed.

Durban Deep. Calculated in US currency from JSE close. (Last = $2.25)

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 line C was bearish. Two weeks ago, the support at line D had held for the third time in recent history, but then the price broke below this important trend support to reach F2 again.

Scenario 1: Support at line F2 has held and the price moves higher again to break back above line D in a new bull trend.

The move down to line F2 has become a 'goodbye kiss' on F2, after the recent break higher from the major megaphone, M-F2. Such behaviour occurs quite often after a break from a major pattern. Should turn bullish quite 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 confirmed by the struggle to break higher through F2 over the past six months. Now, the goodbye kiss on the upper boundary of the megaphone at F2 makes Chart Symmetrical sense as a bullish signal. Scenario 1 is preferred.

Comments on previous charts:

Randgold held above support at $2.60 and reversed higher again. It is also forming a narrow but quite steep bull channel, with support now at $2.65. Investors who have qualms about the Y2K preparedness of gold mines should keep in mind that Randgold has relatively little exposure to operating mines. As an exploration company, most of its assets are gold underground and the mines to extract the gold still has to be developed. It should therefore suffer little or no effect from any Y2K problems in the mining industry.

US 30 year Treasury Bond: After rising to above market support on the weekly chart shown last week, the yield firmed on Friday to close technically still below the market support level, now at 5.61% for this coming Friday. A weekly close above this level would be very bearish.

In 1934 President Franklin Delano Roosevelt devalued the dollar by raising the price of gold to $35 per ounce.