4 replies to this topic

[Money COP!]

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The XAU is showing a Chart pattern indicative of a Market Reversal. This pattern is called a Diamond Shape Formation.

The XAU daily chart is displayed to show this chart pattern. However, not all Diamond Shape Chart patterns guarantee a Market reversal. On October 15, I noticed that NEM was on an uptrend since October 6 of this year with volume decreasing.

Between the two indicators of price to volume using NEM and the XAU chart pattern, I shorted one of the mining stocks on October 16 when the XAU OHLC bars reached the upper boundary of the diamond. (XAU = 93.50).

The problem? I fear not being awake at the wheel should Gold stocks take off on a buy signal.

Any comments? or suggestions?

[SevenOfEleven]

I was wondering about that myself when I added the red lines to my chart

http://stockcharts.com/def/servlet/SharpChartv05.ServletDriver?chart=$xau,uu[l,a]daclynay[dc][pb13!b50!b200][iub14!la12,26,9!lh14,3][j9772280,y].gif

[PIK.]

The chart pattern could also be interpreted as a bullish flag (continuation pattern). Just food for thought. Anyway you label the pattern, volume will be important to confirm the move out, which it looks like your using NEM as your guide for volume analysis. If it turns out that price breaks down more from here a test of the 86-85 support area (neckline area of the larger multi-year inverted H&S pattern) is likely. That area should act as strong support. Wasn't quite sure of your time frame on the trade, so taking any profits on any down move to the neckline area should be considered. On any up move of the XAU I would think that NEM would have to come along for the ride and break the 40-41 resistance area for the move to have any significance (see my previous post).

[fib_1618]

My two cents. Patterns like this have many set rules in which to guide us by. A diamond formation is actually a variant of a head and shoulders pattern and goes by the same rules as such...higher volume on the left and center and lower volume on the right. With the XAU, it's rather difficult to acknowledge such a pattern without the volume characteristics needed to make such an assumption. And even if you look at the individual components (I did a quick scan) you won't see the same formations by and large - especially when it comes to volume. Pattern wise, the diamond is in actuality two triangles - base to base - with their apex' pointing in opposite directions. At this point in the pattern, it would be pushing this visual observation. However, there is one pattern that would fit and that would be a broadening top formation which would allow another new high (and more than likely two) to come to or towards the upper red line in which Seven has posted extending from the September highs. In any event, the bottom line in all of this really comes down to what the Fed will do going forward as far as their handling of short term interest rates. For as long as the Fed continues to increase the money supply faster than inflation can consume the supply, gold will be the beneficiary of this type of stimulus and will continue to move higher longer term. Simply put, as long as there are no changes in the Fed's rate policy later this month, you might as well kick back, relax, and enjoy the ride up. Fib

[SevenOfEleven]

With the XAU, it's rather difficult to acknowledge such a pattern without the volume characteristics needed to make such an assumption.

Daily with Volume:

http://ichart.yahoo....z=m&a=v&p=s.gif

Weekly with Volume:

http://ichart.yahoo....z=m&a=v&p=s.gif