Larry Pesavento: “The gold market has been parabolic over the last 10 weeks and has approached an overbought situation that has not been seen since 1980 when gold topped at 865 an ounce. The Gold bug index (HUI) is showing a three drive to the top pattern along with the butterfly pattern. Within the butterfly pattern you can easily see the AB=CD pattern that is also known as the thunderbolt pattern. This is telling us that the market is incredibly vulnerable to a correction in gold.
We are seeing the same type of pattern evolving in the gold/silver index (XAU) but it is coming at a level where we’ve had three declining tops. Should you be long gold and silver it would be wise to ask yourself this question.? Why haven’t the gold and silver stocks gone up with the price of gold? Part of the answer is because the stock market has been been down dramatically but that is only one element. Silver, known as the poor man’s gold, is particularly weak as it is unable to make only a 61% retracement off of the April 25 highs. Patterns such as those in gold and gold bug index are highly predictive of a major top, if not, at least a major correction. As always it is good to remember that these are only probabilities and not certainties. Good money management and risk control are tantamount to anything related to technical analysis.”
Larry Pesavento: “This weekend I would like to talk about the corn market because it is so perfectly harmonic. The Ensign Windows software I use is invaluable in the analysis of the corn market i.e. and others.
My focus is on December corn which is growing as we speak. It is also referred to as new crop corn because it will be harvested sometime in late October. Corn is a perfect example of the valuable insights that can be gleaned from technical analysis.
First, by using the formations tool in the Ensign program you can easily see the AB=CD patterns that are formed over the past nine months. What is interesting is that they have the same characteristics in time as they do in price.
Secondly, there is a 75 day cycle that is repeated twice and has peeked at the exact time in the previous two cycles. When cycles peak at the right hand side of the cycle, i.e. going longer to the upside, it is referred to as right translation and is invariably bullish do the market. As you can see from this chart the third peak is forming as we speak and is due sometime in mid-September.
By using the Fibonacci tool it is easy to see that the retracement’s entities cycles were 50% and 78.6% respectively. Finally we can look at the repetition in the corn market by watching previous retracements in the corn market as shown by the yellow boxes. The first three retracement’s were perfectly equal. The last retracement that finished with a Gartley pattern in early July was exactly twice the other retracements and stopped at the 786 retracement.
Other charts exhibit the same types and characteristics but this particular one in corn is a textbook example. Anyone unfamiliar with technical analysis are skeptical of its ability to help make good trading decisions should take some time and study these principles and then use them on other charts. The Ensign software I use enables me to look inside the market and see the secrets it is trying to tell us.”