The Golden X

Flexibility and patience are virtues, if timing is unclear. Market’s understanding of patterns has evolved, but we as a society are still poor in timing. This is why we rely more on patterns viz. crisis patterns, excitement patterns, fear patterns, euphoria patterns, seasonal patterns, fundamental patterns, information patterns, sales patterns, earning patterns, immigration patterns, trade patterns, price patterns etc.
The last time we talked about extremes (extensions), now we talk about false excitement and confusions. The corrective X is a price formation that suggests confusion. What we are doing here is explaining mass psychology behavior through price patterns. X waves are one among the 12 labels given to a price movement (1-2-3-4-5-A-B-C-W-Y-Z-X). If it is as easy as classifying investor behavior in a price pattern form, it should be worth a try. After all we get to know whether prices are headed higher or lower, they have bottomed or topped, they are still stagnating or are they ready to move.
Unlike true clear extensions we talked about last time, X waves are dishonest and unclear. This is why they are labeled with B waves as phony waves. This means that unlike extensions which head higher, a push up in X wave is a trap, which gets stronger, the more the prices push higher. X waves are also known to bring out and intensify confusion in society and among analysts. If analysts are also confused and divided regarding market direction, it could be an X wave. These waves are part of correctives (corrections and counter trends), which cannot be properly labeled until they are completed. This is why unlike many other price formations, X waves are tougher to nail down. Forecasting accuracy can be poor, and chances of making a mistake higher in these waves. Above all this, the false nature of the X wave, keeps on building the false illusion of hope. A positive X wave can keep traders and investors excited.
Gold retested 1000 and our belief is that this move up from near 700 levels is an X wave and not the start of a real trend. This means that prices are topping and not moving in a clear true uptrend, but false, phony upmove. This also means that Gold should come down possibly back to 700 and maybe lower. As a society this means a lot to us. Drop in gold prices suggest market still believes in paper assets and stocks and not just Gold, the asset of last resorts. We have illustrated two scenarios here, how we feel Gold should move till 2015. It’s the ongoing X wave that differentiates the two scenarios. Preferred scenario says we should have atleast one year long reprieve in (stock prices) the ongoing crisis. The alternate scenario says “No Reprieve”.
Apart from the mathematical probability, pattern recognition and time forecasting work that we do at Orpheus, we are still optimistic believers, maybe foolishly. We will have to see if the FOOL’s GOLD fooled us too or we are still on track with the last leg down on GOLD and the wave up happening now is indeed an X wave, which will top GOLD end of FEB 2009.