Thursday, December 30, 2010

Gold in Rare Diamond Top Formation

Chart watcher extraordinaire, Abigail Doolittle of Peak Theories Research has spotted a rare diamond top formation in the price chart for gold. This formation, Doolittle writes, is generally a bearish signal. In this instance, though, she thinks it could be a bullish sign for gold in the short term and medium term.

It's worth paying attention to Doolittle. There are many technical analysts who get caught up in what can only be considered voodoo technical theory. Doolittle seems to focus on chart patterns that truly reflect different supply and demand factors that can ultimately be explained in terms of human action.

A diamond top pattern appears to be a period when buyers and sellers are pretty evenly matched. It would take strong new buying to push a price higher out of such a range. Thus, the reason that it is generally a bearish pattern. However, with good old Ben Bernanke arriving on the scene with new money, such a new source of buying is very possible, indeed, likely.

Thus, I think Doolittle has this one nailed, with her thinking that gold is headed for an upside breakout from this formation. Her full report is here.

1 comment:

  1. I don't think her technical analysis shows the story of gold. There's no linking of cause and effect. She does have a nice PR shot, though.

    For example, compare gold's reaction after last Sunday's Chinese rate hike (nothing), with gold's reaction in October to the previous Chinese rate hike (down sharply). Something that can't be pushed down is on its way up, and immediately, as in days.

    And something you may consider for your paid service: gold hitting new highs soon won't really be the money-making story. After all, it's just a 6-7% rise to get to $1,500 from here.

    Almost every gold stock is going to blast higher to double-digit gains while gold is making single-digit gains. No technical analysis needed: just consider the multiplying effect on profits that go up dollar-for-dollar with gold's rise as the gold producers' costs remain roughly the same.