Thursday, August 17, 2006

Gold Speaks And No One Listens

As my reader (thanks Mom) has noticed I use candlesticks in my trading. There are reasons for this and the most important is the fact that the ‘sticks talk to me better than any other method I have found. I am at a point with the candlesticks that I very seldom have to identify patterns – I just know what the next period will bring based on the configuration of the last several periods. As pointed out in there are very few patterns that you need to know and once you know those you can pretty much trade using candlesticks.

Which leads me to today’s object lesson – commodity prices reflect reality. This is the gold chart (GLD) as of yesterday’s close (8 16).

What we see beginning 5 days ago is the classic 3 stars in the South formation which normally precedes a reversal. Then we have a reversal candle (white) that occurred off a gap down and went absolutely nowhere followed yesterday by a gap up that closed lower than its open. To add to the mystery the last three days form a (loose interpretation) tri-star configuration. The tri-star is normally associated with massive confusion which I think is fair. The market as a whole is confused. And why is it confused?

When inflation data shows that inflation is increasing is it still good news if it is below expectations?

Isn’t that the silliest thing you have ever read? If that gets stuck in your head about 10 days from now you are probably going to explode. Sorry. But the people who buy stocks don’t seem to think so. They seem to think that in the face of massive fuel cost increases everything is going to be just fine. Profits are going to soar and soar and we need to bid up prices right away as high as we can.

Me, I’m going to watch gold prices. If gold starts going up again I’m going to start worrying. But I won’t be worried about my investments because as usual – I’ll be flat at 4.

(Disclaimer – I don’t own gold for investment purposes nor do I hold any gold or gold related shares).

The chart comes from – an excellent site.

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