Bulls are back (for time being)

This is a follow up article on my August 19th post.  As we see Nifty finally made a low of 4720 last Friday and completed a 1000 point fall without any significant retracement. I have already sensed a selling exhaustion in the market. Last week market did a five % pull back and made a panic bottom on Friday. 

Today, The down side trend line is broken and I expect nifty will at least complete 38.2% retracement of the entire down move. 

Nifty breaking out of trend line

As per retracement levels nifty will move up from here to 5100 and 5211 levels. Over all I expect that the up move from here will be sharp as it is today and Nifty will swiftly move upto 5211 and may be to 5325 levels. It will also fill the gap it created during its swift down move. From there on fresh selling should emerge which will take markets to lower levels. 

Nifty Retracement levels

Gold Bug's Bitten

My last weeks write up on gold was almost prophetic. Gold on Friday closed at 1878 and made a high on Monday at 1912. and than cracked 210 USD in three days. This is exact pattern of buying climax I have written about.

Today gold is forming a head and shoulder pattern and if it breaks below the trend line 1775 and 1750 it target would be around 1550.

Gold forming Head and shoulder

Gold short term trend line is at around 1750 if gold breaks below 1750 it will give you a clear short signal. 

Gold Short trend line

Gold will atleast move towards its base trend line and support for gold is at around 1530 levels. 

Gold Long term trend line

Therefore risky traders can go short on gold at current levels i.e. 1784 -1820 range. stop loss will be at 1850 and target will be at 1500 levels.

Risk averse traders should short gold below 1750 on closing basis stop loss would be at 1850 and target will be 1550.

Is this buying climax in gold

Gold have moved up from 1500 USD an ounce to 1880 USD an ounce in less than two months. Its almost 25% up-move in two months. As per my understanding of price patterns I think we are witnessing a buying climax in gold. 

What is a buying climax?

As your stock or the market up moves up, at some point there will be a realization on the part of the general public that they are being left behind. They missed buying in the Trading Range, they missed buying on the way up, and now, the stock is calling attention to itself by virtue of its high price. Often this is accompanied by news reports on how well the company is doing. The Composite Operator has been waiting for this opportunity to unload his shares. He started unloading on Preliminary Supply, and now he has his best opportunity. The price action on the Buying Climax will come with wider price spread indicating the buying frenzy, and increased volume, more so then has been seen anywhere in the uptrend. The closing prices will be in the top of the price range as the price moves day by day to the top of the climax. In rare cases. Exiting on the Buying Climax is our most favorable exit strategy (See Money Management).

Second Definition 

Situation where the price of a stock, commodity or other financial instrument, quickly rises but then falls. The initial rapid rise in prices is characterized by high volumes of buyers along with a price increases and can result in quick plummet in stock price due to the fact that there are no more investors willing to buy the stock at higher price.

Third  Definition 

The end to a rapid price rise in a security, commodity, or overall market for a type of asset, such as real estate or bonds, characterized by all of the likely buyers jumping on the bandwagon. After a buying climax, the market will fall sharply. A dramatic run-up on strong volume is a sign of a buying climax.

Look at the current chart in gold the price have moved away form the long term trend line and had accelerate and had almost move up in a straight line. I think this is a buying climax and atleast gold will make a immediate top in term. 

Gold

Let us look at few other buying climax.

Buying climax in nifty in 2010.

Nifty 2010

Buying climax in Nasdaq in 2010.

Nasdaq 

Buying climax in S&P500 in 2010.

SPX 2010

Buying climax in nifty in 2008.

Nifty 2008

We can see that most of the time when ever a long term trend ends it ends in a buying climax where most of the common people gets into the asset. I think we are witnessing a similar buying climax in gold. I think gold will make a high of 2000 USD an ounce before we see any correction. I would like to caution my reader against short selling gold at 2000 but definitely it would be the time exit your long position on gold. 

Time to be cautious.

Looking at the market action I think market have made immediate term bottom and therefore if anyone have shorted the market it will be a good time to book your profits. Keep a stop loss of 4700 If you go long on market form these levels for 5 -6 % pull back.

Although I dont try to justify market action and I believe that price movement are always followed by requisite news which justifies price movement ex post. I think that the current correction is largely due to the insolvent European banking system which is highly leveraged more than 25 X. The size of European banks compared to GDP is also 5X that of US, therefore in case of European bank failures it would be very difficult to save them. Also consider that Government throughout the globe have spent all their fire power in 2008 recession.

If these assumptions will come true then we are getting into a multi-year bear market which is also indicated on charts. 

Nifty charts.

In the given chart I have tweaked retracement levels a bit in order to be conservative and believe that market will take a breather 38.2% retracement and will atleast give a decent pull back form here.  Also there is high probability that some positive news flow may come during this weekend which will halt the market declines (temporarily) 

Dejavu - It just happened again

In this post I just want to reflect on my past calls and how markets have made the text book patterns as predicted by me in my previous post. Let us look at the chart of crude I have pasted in my previous article on June 03, 2011. In this post I have mentioned that crude oil is forming an head and shoulder pattern and in future it may shape out like this.

Old crude chart as on June 3, 2011

This is what happened in crude oil. We can see that the price pattern behaved in the typical manner and crude completed the right shoulder and then cracked to 75 levels.

Crude Chart as on August 18, 2011

Let us look at the following Nifty chart pasted by me on MAY 3, 2011. We can see that in the given chart I have predicted that Nifty will complete the right shoulder and will crack to 4700. Today Nifty closed at 4940 and it’s worth nothing that Nifty at that time was trading at 5600 levels.

Nifty chart as on May 3, 2011

We can see that nifty also complete a text book head and shoulder pattern and had given a perfect breakout. The target for current break out comes at around 4500 levels.

Nifty chart as on August 18, 2011

Before ending this post I would like to address few of my friend who despises technical analysis. It’s true that Technical analysis is not a science but so are fundamental analysis, valuation methods and economic forecasting. Infact economics itself is based on assumptions most of which do not exists. The reason why most of the technical analysts are wrong so often is because they see their own biases in charts. Instead of reading the charts with a pure mind they mostly see what they believe in or what to believe in.

Something rotten in Equity market

I was just going through the long term charts of global equity index and I have observe something very startling. Most of the markets are breaking their primary trend line  or retesting them. This indicates that next few years can be very challenging for equity markets. I have pasted the charts of various stock index here. Rest is self explanatory. 

Taiwan index have already broken the long term trend and have retested the trend line. This indicates there can be big correction on the horizon. 

TWSE Index

DAX index long term trend line support at around 4300, it can correct upto there.

DAX 

FTSE 100 Long term support at around 4200.

FTSE 100

Hengseng index have already broken the long term trend and have retested the trend line. This indicates there can be big correction on the horizon. 

Heng Seng Index

KOSPI Long term support at around 1700.

Kospi Index

Shanghai composite is trading very near to its long term support. If it closes below 2500 than it will start a severe downside correction.

Shanghai Composite

S&P500 long term trend line support at 850 levels.

S&P 500 Index

Sensex long term trend line support at 10500 levels. 

Sensex Index

All these charts indicate that there can be severe correction in the global equity markets and next few years can become really riddled with crisis. We should be prepared for low or negative world growth, major geopolitical conflicts or other factors which will wreck havoc in the market.

Inflation, Stagflation and Asset price

I was thinking about the effect of inflation on equity prices. Therefore I studied the Dow chart adjusted for consumer price inflation. The results confirmed my long held belief that in a fiat currency system asset prices may not correct nominally but in real terms the correction in asset price can be severe. Let us look at the given chart of Dow. In this chart we can see Dow (RED) v/s Inflation adjusted Dow (blue)

Constant Dollar DJIA v/s DJIA

Let's zoom in and see the chart form the period of 2000 - 2011. We can see even though the Dow made a new high in 2008 in constant dollar dow only made a double top and at current price when nominal dow is down by 21% from the top Inflation adjusted dow is down by more than 27%. And that too in a decade where inflation was under control due to globalization.

2000 -2011

In the coming decade I expect inflation to be higher as governments will try to inflate their way out of debt. The next chart will give us an idea about how severe correction can be in real term when inflation is high. The given chart shows Dow v/s inflation adjusted down from 1964 to 1981. We can see that Dow stayed in a range between this period and in nominal terms the index was flat but if we adjust for inflation Dow went down from 500 levels to less than 180 levels which indicates a loss of 74% in buying power.

1964- 1981

The next chart shows Dow and Inflation adjusted Dow form 1925- 1981. We can see that by the end of 1981, the purchasing power of Dow has reverted back to 1950. It had lost 25 years without giving any real returns.

1925 -1982

Let us look at the given chart where we can see Dow priced in Gold. We can see that at max we could buy 40 ounce of gold per unit of Dow in 2000 and at the minimum we could buy 1.5 ounce of gold per unit of Dow. Currently we can buy 6.5 ounce of gold per unit of Dow. If this ratio is going to go back to its previous lows either Dow will have to fall or gold will have to rise or both will happen. I think it is quite feasible that Dow may correct upto 5000 levels and gold go up to 3500 USD levels. And just like 1970's the current decade is conducive for stagflation.

Dow priced in Gold

In the next chart I have presented gold price adjusted for Inflation. Today although gold is trading at 1750 USD per ounce much higher than 700 USD per ounce high of 1979, adjusted for inflation Gold had just reached its previous top where one ounce of gold can barely buy 8 units of consumption basket. If we believe that the coming decade is of stagflation than inflation and Gold may both move up.

Inflation Adjusted price of Gold

The last chart is that of Yuan. We can see that in last week Yuan have rapidly appreciated against USD. As we all know that Yuan is a tightly controlled by PBOC. The increase in the pace of appreciation shows that the communist party is ready to accept to risk losing export competitiveness but they want to slow down the accumulation of USD assets. This will prove to be an important turning point for global economy with lot of unintended consequence. It’s a big unknown as to what would be US 10 yield if china slows or stops buying US treasuries. If US yield raises dramatically it may prove to be catastrophic for the global economy.

Yuan - USD chart

I would suggest reader to go through recent report by Russel Napier "The great reset" will give you more insight into how central bankers throughout the world have/will shift their focus from buying US treasuries which will result into rising US treasury yield. I believe that US treasury have been into falling since last 30 years and the trend is about to get reversed in next few years.

Some Thoughts on US sovereign downgrade

There have been lot of fuss on US sovereign downgrade. I have two points to add to it. If markets believe that a default in real terms should also constitute a default then US rating downgrade is more than warranted. After all there is no way a US can pay its 14 trillion debt in real terms. It will use inflation and currency devaluation to default in real terms while still paying back in nominal terms.

Secondly, whether sovereign ratings relative or absolute. If ratings are relative to other countries then US is still arguably the strongest sovereign and therefore should be AAA rated. But if the ratings are absolute than US warrants a downgrade.

Market and Elliott wave

In this post I would like to discuss my long term outlook (3 -5 years) for stock indices. Before I get into the post I would like to discuss the basis of wave structure, which forms the basis of Elliott wave theory. Although Elliott wave theory is a very complex and subjective its basis is very simple. According to it every directional move in the market is made of five waves followed by three corrective waves.

Although I am not a practitioner of Elliott wave theory and I don’t agree/understand most of the intricacies of this theory, I still broadly agree with eight wave structure given by R.N Elliott.One thing which has changed since RN Elliott founded this theory is the intervention of government in market which has increased drastically since 1930’s. Government intervention not only distorts the market but also changes characteristic of waves which tend to extend the upside and lower the downside potential. But ultimately rules of economics will take over and results into impending collapse of the entire economy in the form of severe recession or stagflation.

Let us look at the given chart.

WAVE STRUCTURE

In this chart I have marked the five impulse waves and three corrective waves. Let us look at the characteristics of these waves.

Wave 1:- starts in the end of large correction. Mostly people believe it to be a bear market rally and another chance of short selling. Interest in equity market is very low. When wave one starts the mass is disenchanted and suspicious of stock market rallies and don’t trust that it will last. Most of the smart money gets into the market in Wave 1. Valuations are generally very low during wave 1 and there is all round environment of pessimism.

Wave 2:- Wave 2 generally corrects up to 50% or 61.8% of wave one. It reinforces the belief that the rally of wave 1 was a bear market rally. Most of the dumb traders creates fresh short in the market. The correction is generally very swift accompanied by very low volume, indicating drying up of selling pressure.

Wave 3:- This is generally the most dynamic wave in the entire structure. The up move is very strong and broad based buying is observed across all segments. Increasingly favourable fundamentals enter the picture as confidence returns to the market. Third wave usually generate the greatest volume. Optimism starts to return and people starts taking interest in stocks. By the time third wave ends P/E expansion is observed, companies come out with great results during starting of third wave and analyst upgrades occurs. The economy begins picks up, credit expansion starts and there is celebration all around. Third wave are generally 1.618X to 2.618 times of Wave 1.

Wave 4:- This is a corrective wave mostly have sideways trend. Companies may come out with sudden earning misses; economy gives sudden negative surprise with limited impact. People are confident and believe that the problems can be surpassed.Wave 4 generally retrace up to 38.2% of wave 3. Last bouts of smart money get into the market. Most of the dumb investors who have entered the market at the top of wave 3 panics and sell out.

Wave 5:- Fifth wave is always less dynamic than third wave in terms of breath and volume. The speed of price appreciation in wave 5 is always slower compare to the speed of price appreciation in wave 3. Blow off rallies are observed during the end of fifth wave. (One of the classic examples of blow off rallies is Nifty during September 2007 to January 2008 moved up from 4400 to 6300). Extreme cases of overvaluations are observed and people start believing that it is the new normal and high valuation is going to stay on forever. Most of the new investors and dumb money enter the market during this wave. Even people who have never invested start talking about stocks. Most of the smart money exits the market during this wave.

Wave A: - During wave A, investment world is generally convinced that this reaction is just a pullback pursuant to the next leg of advance. The public surges to the buy side despite the first really technically damaging cracks in individual stock patterns. During the last leg of Wave A there is lot of skepticsim but everyone believes that ultimately this is just a pullback. Most of the people average during initial leg of wave A. During the beginning of wave A and end of Wave 5 peace and prosperity appear guaranteed forever. Arrogance and complacency reigns.

Wave B: - Wave B is phonies. They are sucker plays and bull traps, speculators paradise, orgies of odd lottery mentality or expressions of dumb institutional complacency or both.They often involve a focus on a narrow list of stocks.Fundamentals weaken subtly while aggressive euphoria and denial prevails in general public and institutional investors.

Wave C: - Declining wave C are usually devastating in their destruction. It is during these declines there is no place to hide except cash. The illusions held throughout wave A and B tend to evaporate and fear takes over.Wave C’s are persistent and broad. Wave C ends in complete despair and disenchantment amongst investors and traders. People vow never to get back into stock market by the time Wave C ends. Most of the analyst trims their coverage to large cap blue chip stocks. Valuations reach very low levels and still analyst give sell calls. It is during this pessimism the foundation for wave 1 are laid.

These waves can be observed in each and every time frame starting from five minutes intraday charts to long term charts. The basic structure of these waves will remain the same irrespective of the time cycle in which they are formed i.e. if it is a bull cycle there will be five up waves and three corrective waves and if it is a bear cycle there will be five corrective waves and three up waves.Although Elliott wave analysis is very subjective and gives various options which are difficult to comprehend when the waves are unfolding but still it gives us the best possible scenario and can be useful in predicting long term trends.

Armed with the above information let us look at the given Dow chart. Here we can see that primary up move in Dow started in 1920 and the up move continued up to the year 2000 when the markets peaked out. We can also see that there were two major corrective phase during this period, first from 1929 to 1938 and second form 1964 -1982.

Dow Wave Chart

According to the given count we can see that the corrective wave A started in 2007 to 2009. Corrective wave B started from 2009 and may have been over when Dow made a high of 13000 in June 2011.I expect that now Wave C is unfolding which if true is going to be the most dynamic wave downside. Since there is tremendous uncertainty in the current macro environment I think it would be unwise to rule out the probability of wave C unfolding from these levels.

Dow Long term Trend Line

Let us look at the second chart of Dow. If wave C unfolds one of the potential target for Wave C is the trend line. This can happen in two ways. Either there is sideways correction for several years like what happened during 1964 -1982 or there is sharp cut like 1929 -1938.

If the correction is steep and downwards potential target for Dow will be around 5000. If the correction is sideways than markets will move in sideways zone for next decade with wild swings on both sides. In that case there won’t be much price correction but there will be a long time correction. It also means that although Dow will not lose its value in nominal terms but it will lose its value in real terms.

Dow Chart exhibiting Side ways correction

We have seen that 1970’s was the decade of stagflation. Economy witness very high inflation with very low growth rates and that caused the sideways correction in Dow for 18 years with wild swings which were as much as 50% - 70% from top to bottom. 1929 -1938 was a period of depression and therefore it caused a steep correction where the price correction was severe but the time correction was limited.

What happens in this decade will completely depend on the government policy. If the government choose to take the pain straight away we will have a recession resulting into a steep correction. If the government will choose to postpone pain and keep creating money we will have stagflation resulting into a sideways correction with wild swings.

Let us also look at the retracement chart for Dow. We can see that the uptrend which started form 1920’s is still intact and Dow have never violated the trend line on the downside. The current support of the trend line for Dow is at around 5000 levels so if there is any sharp correction in Dow 5000 will be a potential target. If the trend line breaks on the downside than it may even correct to 3300 levels.

Dow yearly - Retracement Chart

Last chart I have pasted for Dow is a quarterly candle stick chart. We can see that during the current reversal is Dow the quarterly candle stick pattern are very similar to the previous two tops made in 2000 and 2008 respectively. Therefore it confirms my fear that this reversal is not a short term correction buy its going to be a severe correction.

Dow quarterly candle stick chart

I know these levels will seems ridiculous to my reader but in end of deep correction market trades at ridiculously low level. The irony is that most of the investor will not buy the market even at those low levels. In 1970’s US markets constantly traded at a P/E of 5 for a decade but no one wanted to buy stocks back then. I won’t be surprised if we will see a P/E compression in this decade due to very high level of uncertainty emanating from European sovereign and bank crisis and unstable Chinese economy which may implode within next few years.

But I would like to remind to my user that this is only one probability and not a certainty. What happen will completely depend on how government react, ultimately they can delay the process but can’t avoid it.Even if they won’t allow markets to correct in nominal term it will correct in real term.

Now let us look at the given chart for Sensex. We can see that the up move in sensex started in 1979 and it completed its five wave advance when it made the top in January 2008. I have also marked the corrective wave A which went down from 21200 to 7650 and corrective wave B which went up from 7650 to 21000. I think the correction which have started form current year is going to turn out as wave C and markets are going correct very severely form here.

Nifty Long term Wave chart

If these assumption is correct that the current wave unfolding is wave C than the Sensex will atleast correct upto 10,000 – 12,000 levels.

I have taken the next chart form www.Indiacharts.com. In this chart he had give his wave count for sensex and he is also marking the current wave as Wave C. These are two very interesting article updated by on indiacharts Kondraiff wave cycle and long short report for readers who are interested.

Nifty Wave chart - Indiacharts.com

Let us look at the long term trend line for sensex which started form the lows of 1979. This trend line like the trend line in Dow is a 45 degree trend line, and sensex have never closed below this trend line on quarterly chart. Even in the fall of 2008 sensex took support exactly on the trend line and bounced back from there. If there is any severe correction in the market, it will atleast go up to the trend line which is at 10500 levels.

Nifty Long Term Trend Line Chart

If the trend line is broken than Sensex will complete its retracements. If we look at the retracement chart for Sensex we can see that it completes 50% retracement at 10600, 61.2% retracement at 8300 and 76.4% retracements at 5000 levels.



Nifty - Retracement levels

Again I would like to remind to my readers that this is just one probable scenario and it is not a certainty but according to my view looking at the current economic and political scenario in India I think this will be the most probable view. Again we should remember that by the time wave C ends markets trade extremely cheap but there is so much pessimism in the market that people don’t even want to buy stocks at those cheap values.

This brings me to the end of my long post.

I hope my readers will find this post to be informative and useful. Following are the two charts exhibitng wave characterstics

Chart depecting economic conditions during the five up wave - Indiacharts.com

Chart showing analyst behaviour during market cycle - Indiacharts.com

Tech Musings

Yesterday S&P 500 made a low of 1101 and hit the target of 1100 which I mentioned in my post on 16th June. The reason why 1100 was the most probable target is that it was 38.2% retracement of the entire rise form the lows of March 2009 to the highs made in April 2011.  Further we can see that the second target is around 1020 levels which is 50% retracement of the entire up move and coincides with he lows made in June 2010. I think the present fall in markets will halt at 1020 and probably the Government will come out with QE III by then.  Moreover they would have created enough panic by then to make the QE III proposal more palatable to the public. 

Similarly if we look into the internal of this fall form 1345 to 1101, this entire fall have been without retracement. The first retracement level is at 1172 which got hit yesterday. I think looking at the weakness in the market. there is a high probability that the market will do (at maximum) 38.2% retracement of the entire down move and therefore S&P 500 should not move above 1206 levels. But unless and until S&P500 moves above 1260 levels there will be further downside correction which will take the market to 1020 levels. 

Yesterday in my second post on Gold I wrote,  probable target for gold can be at be 1995 (38.2% retracement), the second target will be  2534 (50% retracement) so on and so forth. To prove the point lets see the given chart. Gold broke above the round bottom pattern when it move above 700 USD an ounce. The highest target for this pattern is at around 1900 -2000. But before moving towards this target gold have consistently faced resistance and support at various Fibonacci levels. 

I have created this chart to show how before moving towards the ultimate target of  1900 -2000 USD gold faced support and resistance at various levels. 

Similarly in the same way before moving towards 5000 levels, Gold is bound to face resistance at various Fibonacci levels but if the government keeps on debasing currencies than ultimately gold can scale 5000 USD an ounce. 


Lastly let us look at the INR - USD chart.  INR was made a high of 52 during February 2009 and since then have been moving in the side ways trend.  I have made the trend line and we can see that this week INR have convincingly broken out of the downtrend.  If INR manages to say above 45 levels for three weeks then it will move up towards 48 levels.

INR - USD chart

As per my reading of world equity indices I think the sell off and risk aversion in global equity markets will continue and I wont be surprised to see INR breaching 52 levels and move beyond it. 

More on Gold

I have been getting quite a few queries on seemingly impossible and obnoxious target of 5000 I have mentioned in previous post. I am writing this post to throw some more light on that. In my previous post when I mentioned 5000 as a probable target, but by no means I want to convey that it is going to be the most likely target for gold.  

Let us look at the give chart on gold. 

Here in the chart I have used Fibonacci retracement to find out other potential targets on gold . The first target on gold form here will be 1995 (38.2% retracement), the second target will be  2534 (50% retracement) so on and so forth. The highest possible target as per the pattern is around 4800. Now 4800 will come or not depends on lot of factors including government policy decision they make in future. Reader must be well aware that current era is the era of uncertainty and big seismic shift happening in global economy. I recently updated this article (http://beyond-boom.blogspot.com/2011/08/global-economic-downturn-crisis-of.html) which will give you an unparalleled insight into the kind of political upheaval we will see. 

Its very hard to forecast the exact time and price which gold will achieve but the long term trend in the yellow metal is up.

Let us look at the second chart for gold. In the give chart we can see that Gold made a high of 800 USD per ounce in 1970's and made a low of 250 and stayed at this level in the following two decade. In 2007 Gold moved up above 800 USD and broke a round bottom pattern. The target for this pattern is at around 1800 USD Per ounce which have been achieved today. 

Therefore it may happen that gold have made a top or it will make a top somewhere around 1800 -2000 levels. The confirmation will come only when gold will give some reversal indication. Till reversal pattern appears on charts, Gold is always open to the upside of 2000 USD per ounce. 

Let us look at the third chart of gold.We can see that gold have been increasingly making steeper trend lines in last 10 years. A downtrend in gold can only be confirmed when gold will break the trend line and move below 1500 USD.

Once Gold will signal a reversal pattern on charts the downside target for gold can be gauged form the following charts. The first retracement is at 1420 levels. The second target is at  1200 levels and the most optimistic targets are at 1015 levels. I would like to remind my reader that these are tentative targets which depends on the level form where gold makes a reversal. 

Let us look at the next chart. It shows holding of gold by ETF's. As we can see the holding chart have risen sharply but still have not gone parabolic. As per my experience I think in the termination of any trend the price movement tend to be parabolic. Since Gold is not a ordinary commodity but it is also a store of value the price of gold will go up if the money supply goes up. Therefore only price movement may not give the correct picture. Therefore I expect that when Gold will ultimately top out around 5000 levels ETF holding of gold will move up parabolic curve.

The next chart shows the US treasury gold holding relative to monetary base. since 2008 US monetary based have qudarapel  while gold have doubled in value. therefore the current ratio will still be at all time low around 10%. If history is any judge than the value of gold relative to monetary base should move up. This can happen if FED reduce its balance sheet or if the gold price goes up. Since I dont see any signs of the former happening there is a high probability that gold may move up to substantial new highs.

Just to add a note on technical analysis. In this uncertain world Technical Analysis gives you an additional tool to look at the intensity of market sentiment. Combined with macro economic analysis, understanding of market psychology and Fundamental analysis it may become potent weapon for trader and investor. I use technical analysis to gaze at major trend reversals. Moreover there is lot of subjectivity in Technical Analysis just like economics or fundamental Analysis. Reading chart is more of an art than science and depends on one's experience and learning curve.