Stock prices and commodity prices move in waves. It only takes one look at any price chart to see that this is so. Also, the waves are predictable, which in turn means that prices are predictable too, not necessarily to the dollar or the penny, but often close enough to formulate investment and trade plans.

This predictability is derived from the use of the candlestick price display plus the use of some of the many standard indicators that have been prevalent over the past few decades. In combination, they very often correctly forecast the course of prices in future days.

Today, that uncanny ability to predict price action was on display once again in the gold standards.

We have been saying for many weeks in our newsletter that gold is headed for a price top and reversal. Of course, this went against the general wisdom, which almost universally held that the poor state of the economy and persistently falling stock prices could have no other result than a continued rise in the price of gold. We thought we knew better than that, and waited for the evidence to prove us right.

The first clear clue that a reversal was imminent occurred on February 20, when the “real body” (that part of the daily price action that is between the open and close price) completely engulfed the “real body”. actual” of the price. action of the previous day. At the high end of a long trend, when this pattern appears, it is called the “Last Engulfing Bullish” pattern and is considered bearish. The next trading day (February 23), prices closed lower, and the candlestick pattern for that day’s price action was a “Wave Doji High” (a Doji occurs when the opening price and the closing price are the same, or almost so) and a “hanging man”. Both have bearish connotations. The Hanging Man requires confirmation for a lower closing price on the next trading day. With these two signals in mind, we were looking for a lower close on February 24.

Prices on February 24 gapped lower at the open and actually closed significantly lower that day, providing the necessary confirmation of the downtrend. Today, February 25, prices closed even lower (around $20), almost confirming that gold has topped out and turned around, and that prices are very likely to drop from this point. .

The Indicators also intervened in the prediction. For several weeks some of them have been riding at the numerical extremes of their respective ranges; and in one case there has been a fairly obvious divergence between its trend line and the trend line of Gold prices, in the sense that the trend line of the Indicator has been pointing Down while the trend line of the price del Oro has been pointing up. We have learned that a divergence like that is a warning that a continuation of higher prices is highly suspicious.

The bottom line is that the combination of candlestick price charts and a careful reading and understanding of the indicators gave us good reason to believe that gold prices are headed lower; and the proof began to be evident today.

william kurtz

February 25, 2009