Explosive Upside Potential

By: David Nichols | Thu, Jun 26, 2008
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Below you'll find an excerpt from a recent issue of the Fractal Gold Report, published after the close on Wednesday, June 25, just after the post-Fed energy rush.

There is also a quick look at silver, as this is one of the most amazing market fractal patterns I've ever seen. The incredibly well-delineated pattern in silver is actually providing a rare opportunity for low-risk/high-reward trading, which is quite rare in the hyper-volatile silver market.

There is also a monstrous trade coming up right now in equity markets, as the SPX plunges for the third time down towards 1270. Remarkably, the "slingshot energy" embedded in this pattern has not released yet, as we're still waiting for that perfect moment when the catalyst emerges and the upside energy releases. At this point the upside energy release could be one for the record books, so subscribers are poised and ready with a specific entry strategy to capture this move when it finally comes. But remarkably, it's not too late.

The Fractal Gold Report provides daily updates on gold, as well as a daily report on equity markets (SPX). If you choose the annual subscription plan, you also get periodic updates on the amazing fractal pattern in silver.

This is definitely not going to be a long, dull, and lazy summer in financial markets. This is actually the perfect time to shut out the cacophony of extraneous noise -- TV pundits, op-ed pieces, web commentaries, pithy sayings from Buffett and Soros -- all discussing the exact same problems we've been hearing about for well over a year. Instead, concentrate on exactly what you're seeing in front of you, in the markets themselves.

Don't be swayed by anybody else's opinion -- even mine! Instead look at the markets as objectively as possible, coming to your own conclusions. I think you'll be surprised by what you see.

Fractal Gold Report, published after the close on June 25th.
by David Nichols

Even though gold continues to drift around without a trend, it continues to lay the groundwork for a potentially explosive move higher.

Wednesday was another day where gold could have taken a clear turn for the worse, yet by the end of the day charts still look constructive for a rally. The two "tails" down on the daily chart to explore the $875 region could now serve as a springboard higher, as this is the second successful test of this area.

If gold is indeed going to rally up and over $910 -- on its way back up to the highs over $1,000 -- then this is a perfect time to get rolling. The latest Fed decision is behind us, and it drove the dollar down and gold up on the first knee-jerk reaction. So we just might have finally found the investment theme that will the release the huge amount of potential energy embedded in both the daily and weekly charts.

The daily fractal dimension remains super-high, at 65; and the weekly fractal dimension has now gone even higher, up to 66. There is more than enough energy in these charts to push gold quickly back up to the all-time highs.

The only chart that is not yet ready for a monster trend is the monthly chart, as the monthly fractal dimension still needs quite a bit more time to fully consolidate and get its fractal dimension up to 55. The last monthly trend was a whopper and typically it takes a year or more to work off a move like that.

But we don't need a $400+ monthly trend to generate substantial profits over the coming period. Gold can easily move back up to the highs at $1,034 during this ongoing monthly consolidation. This is exactly what is happening right now with soybeans, as this market continues to provide a useful template for how a parabolic growth pattern typically develops and extends.

It is unlikely that soybeans will break out and move to new all-time highs with the monthly fractal dimension still so low, at 38. But a move back up to the highs, and a drifty pull-back from there, is a typically bullish way for this big monthly pattern to consolidate. And this is exactly what's happening in beans, and I think it's exactly what is about to happen in gold.

Soybeans will likely need to pullback down to the last weekly breakout spot -- around $14.00 -- before this market will be ready to move back up and break into the clear.

A similar path in gold would look something like this:

Gold should make a strong move up as high as $1,010, and from there pull-back to the $940 area. It should then drift up-and-down within the confines of a narrowing triangle, which would be the perfect set-up for the next hyper-growth phase -- and this next growth phase could easily propel gold well up into the thousands.

However, I don't think gold will be ready to move into this next hyper-growth phase until the next "Pi Cycle" turn date, with is scheduled for April 19, 2009. So we've got about 10 more months to go on this big triangle consolidation, so we'll look to trade the swings up and down until then.

The trigger event for the expected move up to $1,010 will be the breakout over $910, which will also be the breakout over the upper boundary line of the current consolidation triangle.

So we should find out within the next day or two whether this latest Fed meeting will be the catalyst to set this breakout in motion. The set-up is certainly right for it.

As far as silver, the weekly fractal dimension has just jumped up to an incredible reading of 73. That's as high a weekly reading as I've ever seen, which is direct proof that silver has been spinning its wheels as it continues to bounce around off $16.50. But all of this churning has generated an enormous amount of potential energy, and since the pattern remains clearly bullish, this energy is set to release to the upside.

The $16.50 energy level in silver is one of the most powerful "attractor/repeller" levels I've ever encountered in a market. This is giving us a simple and straightforward way to trade silver that keeps working, time after time.

As far as equity markets, I've been reading many extremely bearish commentaries during this expected decline off SPX 1440, as so many people are absolutely convinced that a once-in-a-generation bear market and depression are straight ahead.

But this opinion doesn't fit well with bullish monthly patterns on the Dow Industrials and the SPX.

It actually creates an explosively bullish situation when a straight-forward, typical test back down to prior breakout levels engenders intense negativity and widespread doom-and-gloom.

The enormous pessimism underlying equity markets is just not reflected in the charts. This is just a routine, re-energizing pullback on the monthly pattern. Sure, you can argue that this has been a big move down, but it's nothing in comparison to the big moves up we've been seeing.

I showed the daily chart of soybeans just above, but I want to show it one more time to compare it directly to the monthly SPX chart.

It's just not a big deal for a market to "bonk" up against the previous spike high, and to go back down and test the last breakout level to gain the necessary energy for the next push higher. The only thing non-routine about this current situation is the intense negativity accompanying the move down.

Please follow this link for more information on the Fractal Gold Report.



David Nichols

Author: David Nichols

David Nichols
email: editorial@fractalgoldreport.com
Fractal Gold Report

David Nichols

David Nichols publishes the Fractal Gold Report, a daily report covering the gold market using proprietary techniques that go beyond technical and fundamental analysis. The Fractal Gold Report is available by subscription here. Fractal Gold Report Disclosure.

David Nichols is a graduate of Yale University and a leader in the emerging field of fractal market analysis. This pioneering analytical approach studies the markets as chaotic, non-linear systems, addressing the predictability in financial markets. Fractal market analysis discovers the order hidden within the seemingly random chaos of the markets.

David is the editor of the Fractal Market Report and the Fractal Gold Report, daily subscription newsletters written in an easy-to-understand style that cover the markets using his proprietary techniques that go beyond technical and fundamental analysis.

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