Friday I did a, what if post on a possible top being put in on gold. I would like to expand on that theme by showing a few more charts and explaining alittle more in detail of what I think maybe going on with gold. This time we will focus in on gold itself and not the GLD.
You often here me speak of halfway patterns and how they show up roughly in the middle of a trend channel, halfway between the bottom and the top of a rally phase. Gold has produced several beautiful triangle halfway patterns that have measured almost exactly the halfway point of an impulse leg up. The first chart I would like to show is our latest triangle halfway pattern and its relevance to our top price in gold at 1033. It shows how some impluse legs can be divided equally in two. We just got done matching the first leg up of this impulse move and if you can do this on the top side of a halfway pattern it means a top will be in place shortly. I explain how to measure the halfway triangle on the chart using the measuring box and red and blue arrows. I will post a live chart for those that subscribe to stock charts as it will let you measure for yourself, to see what I’m talking about, and how uncanny accurate it can be. I believe all you have to do is click on annotations then click on the big measuring box labeled “TRIANGLE HALFWAY PATTERN MEASUREMENT” on the chart and drag the box over to the bottom red arrow. This will measure half of the impulse leg up. Then move the box over to the next red arrow to measure the 2 leg up and the top for this move up. This is just another piece of the puzzle that says the top is in.

stockcharts.com/h-sc/ui?s=&p=D&yr=1&mn=1&dy=0&id=p45135892520&a=134589567&lis

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Staying on the daily look and last Friday’s post of the significance of the breakdown past the previous low and how important that event was IMHO, notice the black horizontal line that runs just underneath the March lows to the right side of the chart. When that horizontal line was broken 7 days ago it turned from a support line into a resistance line halting last weeks rally attempt right at the previous March lows. There is nothing magical about the reversal from support to resistance, it is how support and resistance works. The rational is, for the people that bought the March lows, as long as that area held no worry, but 7 days ago when the March lows were taken out the new rational is, if I can just get out even I will sell on any rally approaching where I got in, the March lows, thus turning a support line into a resistance line. Sound familiar. Now what this action is doing is putting in a right shoulder of a H&S top formation, another piece of the puzzle. Once we penetrate the neckline the top will be complete.
gold-daily.png
There is alot of information on the weekly look that can give us some important clues as to what is really happening with this latest impulse move up. First I would like to look at the last 2 impulse legs up labeled 1 and 2. Each have a halfway pattern that I circled in red for easy identification. Impulse wave 2 is the one we just reviewed on the daily look that measured to our potential H&S top. Impulse waves 1 and 2 are an almost exact duplicates of each other with impulse wave 1 being slightly longer . Notice the red circles in both impulse legs as they measure exactly half the distance from the bottom of the rally to the top of the rally. In impulse leg 1, when the second half of the rally grew to the length of the bottom half the top was in and a near vertical move down ensued leaving you very little time to react or get out if that was your intent. A long 16 month correction took place leaving you stuck in the muck with little or no appreciation taking place in your portfolio.
Again I will post a live chart for those that subscribe to Stock Charts so you can measure the halfway moves for yourself. Just click on annotations, then move the measurement box for each impulse leg up, to the red arrow at the bottom of each impulse move to see how close they called the actual top.

stockcharts.com/h-sc/ui?s=&p=W&yr=10&mn=0&dy=0&id=p29266331822&a=134589566&l

gold-week.png
Now lets look at the RSI and the MACD for more clues as to a possible top forming in this area. The RSI is showing a negative divergence with Impulse wave 1 up to impulse wave 2 up. Even tho gold is $300 higher now the RSI could not make a new high. And just looking at impulse wave 2 up, you can see a negative divergence with the little consolidation triangle, red circle, to our current high at 1033. Hard to ignore.
The MACD at the bottom of the chart is really telling a story IMHO. Notice the halfway pattern, red circle on impulse wave 1, and the red circle down on the MACD labeled halfway pattern, they were both small corrections in the impulse wave up. Notice the same formation on our 2nd impulse wave up right at the halfway point. We then went on to make our ultimate high in each rally leg that suggests, game over for awhile. Compare the mechanics for each impulse wave 1 and 2 on the MACD to see how similar they are. If things play out the same way as they did on impulse wave 1 up we should be in for a real sharp move down that should find the lowest part of the correction by May of this year. The initial move down off of these impulse tops tends to be the lowest point in the consolidation phase that ensues. So the good news is, the initial spike down is where we will find the lowest price in the next consolidation pattern.
gold-week.png
If we assume the top is in then we need to look for an area of support that will be strong enough to withstand a sharp and intense assault that will feel like the end of the bull market. I have drawn 5 black horizontal dashed resistance lines from each major top area from the 28 year bear market. These resistance lines, even tho they maybe old, still influence our current uptrend channel. The resistance line at 735, that takes in the lower 1980 high and the top of the latest triangle, could offer strong support in a sharp downtrun. The Fib 38% retrace of the whole bull market also comes in at 735. As everyone will be looking for the 850 area for support, the old closing daily high, I think the 735 to 750 area will offer better support if things get ugly going into the ultimate bottom. If for some reason this major support area at 735 to 750 fails I will write another post called “What if 3″ as there is alot more I could add here but will await futher developments before expanding on a more bearish view. One thing I do not want to see is a violation of the 300 dma and the 65 wma which come in close to the 750 area at present.

gold-monthly.png
One thing to remember about this possible decline we maybe getting ready to experience is that time wise it will be short, less than 3 months from peak to trough. If it follows the previous script from the other 4 consolidation tops, we will have our price low in place within the first 3 months of this top. Now, how long we consolidate after that 1st low is place is anybodies guess at this point.
One more thing to take notice of is the last bar on the monthly chart. I alway like to see how long of a tail we have when we have a month that goes into new all time highs only to fall back at the end of the month near the lows, like this month. Unless we have a huge up day tomorrow, we will probably close near the lower third of the monthly bar. Long tails can show up at reversal points or tops signaling a reversal of trend is at hand.
gold-monthly.png
Lets review some of our clues for signs of a top.
1st- The break below the March lows signaling a lower low in place.
2nd- A possible H&S top forming on the daily.
3nd- Our halfway pattern in this last impulse leg up measured to our top at 1035 exactly.
4th- We have a negative divergence on the RSI for impulse wave 1 to impulse wave 2 and on the short term from the halfway pattern to the current top on impulse wave 2.
5th- The MACD on the weekly chart is showing a topping look.
6th- The last bar on the monthly chart is showing a long tail which could be bearish.
The evidence from my point of view is becoming overwhelming for a top in this area. I can’t just blow off certain pieces of TA that are saying things might be deteriorating right in front of us. I hope I’m wrong in this analysis and we just blow right thru the old high at 1035 and everyone makes a killing on their stocks. But if I am close to being right, this next leg down will be very painful for alot of folks with no protection.
We are playing a game where there is no horn or whistle that goes off when a top or bottom is in place. You can never know for sure until time has pasted if what you are seeing is reality.
Please everyone do your own DD as this is just one mans opinion in an ocean full of opinions.
All the best…Rambus