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12 views5 pages

GOLD

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Uploaded by

Vahid
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Stocks & Commodities V. 2:3 (84-86): June, 1984 Gold: Studies in Price Action by Jesse H.

Thompson

June, 1984 Gold:


Studies in Price Action
by Jesse H. Thompson

The recent March trend reversal, as represented by the activity of the June 1984 Gold contract, is an
excellent study of the interaction of price with natural resistance levels, as well as illustrative of the
process of "distribution to the side".
The most important natural resistance areas for the June 1984 Gold contract relative to the recent rallying
activity are the natural divisions of the range formed by the last major monthly peak and the last major
monthly bottom. For the June 1984 contract this was the 473.50 top of July '83 and the major low at 374
in January 1984 (refer to Chart A). Once the monthly bottom at 374 was defined by the rally in February,
the range was also concomitantly defined as 99.50. From this range we can quickly calculate potential
resistance at a .382 (38.2%) range division which is 412, with the next important level being a .50 range
division or 423.75. It is also helpful to calculate the midpoints between the .382 (38.2%) and the .50
(50%) level (or the .50 (50%) and the .618 (61.8%) level) as the actual tops or bottoms often occur near
exact midpoints of two important price resistance levels. This level for the .382 and the .50 percent range
is the 418 dollar price level.
Therefore, as June Gold rallies to correct the oversold bear market condition prevelant at the 374 bottom,
we can expect potential resistance at the first important levels of 412, 418 or 423.75.
Referring to a daily price chart of June 1984 Gold (as of March 7th), note the resistance levels and the
action of the June 1984 contract relative to these first two levels 412 and 418.
The reactions from these resistance levels illustrate a potential area of trend reversal. Prior to either
liquidating long positions or entering a short position, we will look for further price action confirmation
of demand failure.
We watch the market closely. On the 8th of March (See Chart C) a big outside day occurs, with prices
closing strong. Maybe this will lead to a rally test of the 418 level or even continuation on up to higher
level such as the .50 at 423. On March 9th, (see Chart D) there is no follow-through to the strong effort of
the 8th. Demand fails to carry through. A yellow warning light goes off, but let's wait to see what
develops. Maybe follow thru will occur the next day or so.
March 12th - 13th, prices continue to trade in a sideways pattern or consolidation and now there are three
days of activity inside the range of the outside day of the 8th. This type of activity is called "distribution
on the side". It normally occurs to the right of a major top or bottom and represents a relative
equilibrium between the struggles of the buyers and sellers. Once this established range is penetrated it
normally represents evidence of supply or demand preeminence which causes a trend reversal.
We are now very cognizant of the importance of this trading range established by 404.50 to 413 and will
consider a break upward as evidence of a continuance of the current upmove in place since the January
lows. If the bottom of this range is penetrated, we will consider this as evidence of supply regaining
control which warrants a short position.

Article Text Copyright (c) Technical Analysis Inc. 1


Stocks & Commodities V. 2:3 (84-86): June, 1984 Gold: Studies in Price Action by Jesse H. Thompson

On March 14th, prices open higher fail again over 410 and drop abruptly . A solid penetrating of the
range of distribution and a clear indication of demand failure intra-day to the 400 level, a rally occurs
intra-day back to the old bottoms at 404 level. Price holds near 404 for a lengthy period with plenty of
time to sell at the market for a 404 fill. A stop is placed at 416 (above 413) for a 12 point risk.
Price goes into consolidation to the side between 400 and 404.50 with our stops just above the tops at
409.70 and 413. Price continues the trend indicated by the demand failure at the 404 level and we let
profits run when we get a clear indication of another trend reversal we will cover the short and if the
trend reversal occurs from above the 374-380 bottoms, we may look to go long. Meanwhile the stop is
lowered to points above important top levels as they occur.
In summary, the March price action of the June 1984 Gold contract provides a clear example of the
normal type of price activity which occurs at and around natural resistance levels, and the utility of
calculating these levels in advance so that we can be alerted as to areas of potential change. Secondly, we
utilized Gann's concept of selling low and waited for a clear indication of when to act. We did not sell at
the high nor will be buy at the bottom, but we will capture a profitable swing in between and that is after
all our final objectives.

Chart A

Figures Copyright (c) Technical Analysis Inc. 2


Stocks & Commodities V. 2:3 (84-86): June, 1984 Gold: Studies in Price Action by Jesse H. Thompson

Chart B

Chart C

Figures Copyright (c) Technical Analysis Inc. 3


Stocks & Commodities V. 2:3 (84-86): June, 1984 Gold: Studies in Price Action by Jesse H. Thompson

Chart D

Chart E

Chart F

Figures Copyright (c) Technical Analysis Inc. 4


Stocks & Commodities V. 2:3 (84-86): June, 1984 Gold: Studies in Price Action by Jesse H. Thompson

Chart G

Chart H

Figures Copyright (c) Technical Analysis Inc. 5

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