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Subject:  Re: Poll: Technical Analysis Date:  5/15/2013  12:38 PM
Author:  MDCigan Number:  17138 of 26123

MDCigan - Do you think defining gold as an alternative form of currency might cloud one's ability to interpret the TA? Wouldn't it be less of an intellectual burden to treat it as simply another commodity?


Great questions, and actually something I've been pondering recently but a bit more broadly than just gold as a currency or commodity. The broader question is to what extent does one conviction in fundamentals interfere with an unbiased interpretation of the chart. To give you an example, and I missed her comments in real-time because they were not posted on her website, but Louise Yamada turned very cautious to bearish on gold many weeks before that critical support at 1525-1535 was taken out. She was sticking 100% with interpreting the price action whereas I can say I think I was giving gold the "benefit of the doubt" on a few key days because of my view as an alternative currency and all that implied IMO. I'm not sure there is a magical solution here. I've had stocks in the past where I ignored the chart based on what I thought I knew fundamentally and it has worked and not worked. Going back to gold as a specific example, on this most recent run to 1800 in October 2012, as it pulled back, there came a point when it started to not "act right". Ironically, I even mentioned this in a post on Liquid Lounge but I still wanted to give the chart every benefit of the doubt. There were 2 days in particular that were negative. The first was 2/11/13 where the trend line off the spring 2012 lows failed to hold and also happened to be a symmetrical triangle downside break. The second day was 4/2/13 where the short-term uptrend failed to hold. On a shorter-term trading basis, obviously shorting on either of those signals would have resulted in gains. So, yeah, I think might interpretation was "clouded" by my view as an alternative currency and my perception of central bank policies.

All that said, bottom line, I exited the last of my long-term positions in gold at around 1500-1505 on the break of that critical support line, and I sold roughly half my longer-term position back in fall 2011 near the top (one of my cardinal rules is you always sell/reduce into parabolic spikes). I made substantial cumulative profits being long gold at various times the last several years. Presently, in my shorter-term trading account I am short gold. Revisiting DTM's point, I have absolutely no idea whatsoever if gold will actually bottom at around 1300-1320, or whether or not another breakdown is in the cards. That really isn't important to making a profitable trade. If the previous bottom doesn't hold, that will provide another solid short signal for further significant downside.

Also, along these same lines, did the charts leading up to the yen's drop in recent months show the same sort of thing as the charts ahead of gold's drop from 1800 - 1400?

No. Gold put in a triple top at 1800. Until the days I mentioned above (2/11 and 4/2) there was no reason technically to tilt one way or the other that the range would break up or down. It looked like a sideways consolidation. At some point the evidence mounts that the sideways consolidation is building the topping process. In contrast, the yen put in a multi-year head and shoulders top with the left shoulder going all the way back to October 2010, but IMO and according to standard chart theory it is that right shoulder and lower top which reveals the weakness and likely major trend reversal.
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