Market Monitor Extra - Mark Leibovit
Friday, April 24, 2009
Tonight's Market Monitor segment featured Mark Leibovit, Chief Market Strategist at VRTrader.com. NBR anchor Paul Kangas asked Mark to review some of the market technicals and to review the outlook for gold. You can watch video of that interview here. (You need Flash installed to watch.) And, you can also review more of Mark's analysis that couldn't fit into the on air interview.
Extended Analysis from Mark Leibovit
The four charts discussed below will open in new windows in your browsers once you click the links.
Chart: Gold Wedge (PDF)
Discussion: The "falling wedge" pattern is basically price compressions in the direction of the trend on falling volume. This signifies that, in this case, the bears are having trouble sustaining the trend. Volume has been drying up as gold pushed lower in recent days and weeks. A breakout of a falling wedge pattern is bullish and potentially very explosive. The breakout depicted in the chart occurred on an increase in volume coincident with a breakout above the important 20 day moving average.
Chart: Gold Cycles (PDF)
Discussion: When traders look to the technical backdrop of gold or any other commodity or equity, there is always reference made to support and resistance levels, price patterns, etc. One of the most neglected, yet most valuable tools is time. It is one thing to say that gold should find support at this level or that level, but WHEN should it get there? Think of technical analysis as a three legged stool. One leg is the price action (support, resistance, momentum indicators, etc.). The second leg is pattern, as in what patterns are being formed by the price action (Elliott wave, wedges, triangles, etc.). The third leg is TIME. When will price reach its objective, or better yet, when can we look for turning points? Without any one of the three legs, the complete technical analysis stool is difficult to balance. In this example, we will take a broader look at time cycles in the gold market followed by a close up look at where we are now with regard to pattern, price, and time.
The chart shows a longer term view of a dominant time cycle in gold. The cycle lasts roughly 4 months and is usually culminated by some sort of reaction in the price of gold. It does not necessarily lead to a change in trend, but at the very least a reaction, or price correction against the prevailing trend can be expected. Notice the small green circles in the chart that show how price reacted around the cycle change points. In each case, a close up look at price and pattern would give reliable clues as to whether price would merely correct or if a trend change was developing. Remember... whenever looking at technicals, use a "weight of the evidence" approach. Do not rely on only one indicator. Always use time as one piece of evidence as to when major reaction points can be expected. Looking at the chart, you can see that the four month cycle came in on Tuesday, April 7. So that tells us to be on our toes looking for a reaction of some sort in this time frame.
Chart: Volume Reversals™ and the S&P 500 (PDF)
Discussion: A Volume Reversal™ is a change from a Rally day to a Reaction day accompanied by an increase of volume or a change from a Reaction day to Rally day accompanied by an increase in volume. Volume Reversals™ coming off intermediate lows or highs have greater significance in helping to define those lows or highs and important pivot points in the marketplace. A Negative Volume Reversal™ generally results in downside follow-through anywhere from a day or two to many weeks. Conversely, a Positive Volume Reversal™ generally results in upside follow-through anywhere from a day or two to many weeks. In this chart, a Positive Volume Reversal™ was formed on March 4 signaling a potential bottom and a Negative Volume Reversal™ was formed on April 20. We will soon see if the signal is early or soon invalidated.
Chart: Annual Forecast Model for Gold (JPG)
Discussion: Since you are probably new to the AFM's construction and guidelines, let me lay some ground rules. First, the AFM's construction is fairly simple. The vertical axis denotes direction and the horizontal axis denotes time. A chart zig-zagging lower is a bear market pattern, but a chart zig-zagging higher is a bull market pattern. Secondly, please note the AFM does NOT attempt to predict amplitude, but only predicts direction! In other words, the Models forecast the TIME when high and low points in the stock market may occur, not precisely high or low the market may be. Peaks and troughs can be at any level. It basically comes down to a question of relativity. Even though the chart may show a high point or a low point, there is no specific numerical value associated with that point, i.e., Gold at 1000 or Gold at 600. The AFM formula simply does not generate such values. In addition, new relative highs or lows in the AFM does not necessarily suggest higher market highs or lower market lows. These points could turn out to be relative highs or lows and nothing more. Thirdly, the AFM is presented in good faith as a general guide for the future. Though we make no modifications during the course of the year, we are always paying close attention to other technical, cyclical and sentiment indicators to help "fine tune" what is unfolding in the marketplace. As we have all learned in the past, placing too much weight on any one indicator (including the AFM) may not be the best decision.
