GOLD'S BULLISH "CUP & HANDLE" CHARTBy Peter Brimelow, MarketWatch
Last Update: 6:45 AM ET Oct. 3, 2005
NEW YORK (MarketWatch) -- Is charting making a comeback? The letters are drawing some graphic pictures that currently paint a good outlook for gold but a sad one for stocks.
Charting, a specialized form of technical analysis that looks at price patterns rather than the financial details favored by fundamental analysis, has been in eclipse recently -- partly because of the attacks on it by skeptical finance academics, partly because cheap computing power makes it easier to express relationships as ratios.
Maybe it's me, but there seems to be more charting about lately -- particularly in commodities, where it never really died out.
Dow Theory Letters' Richard Russell sees a "cup" (i.e., bullish) in gold. "Many of you have heard of the bullish 'cup-and-handle' formation," he wrote on Friday. "That is what I believe we're seeing now in the pattern in gold."
Using the chart for the precious metal's most active contract, Russell sees "a powerful formation, and it should lead to higher prices."
Martin Pring, author of the technicians' bible "Technical Analysis Explained," reached a similar conclusion about gold in his weekly intermarket update.
"Last week we pointed out that both the shares and the metal had experienced short-term exhaustion days and that a correction lasting five to 10 sessions was likely," he said. "A small correction did follow, but both series have now cleared their exhaustion highs. This very fast 'shrugging-off' of a negative short-term position is another sign of a very strong market. ... The precious metal complex looks set to make significant new highs."