Saturday, November 3, 2007

The bigger the consolidation the bigger the bull

I've noticed that often the size of a consolidation will give one a clue as to how big the rally will be once that consolidation is complete. Often the length of the rally will approximate the duration on the consolidation. I'm not necessarily talking time wise here since a powerful rally will often cover a lot of distance rather quickly. What I'm suggesting is that the length of the consolidation can give us a target for the magnitude of the following upleg. In the first chart of gold we see a 9.5 month basing period that was followed by a rather large rally that actually exceeded the size of the consolidation by a bit. In the next chart we have every ones favorite bubble, China. However look at the sheer size of the consolidation during the devastating bear market from 01 to 05. That my friends is a 5 1/2 year consolidation from a bear that took away more than half the value of the Chinese market. It looks to me like the upleg is still a bit short of matching the magnitude of the consolidation. Now lets look at my favorite market, Gold. What we are looking at is a 16 month consolidation of the gold market. This would suggest a tremendous move is now underway. As bulls are want to throw off as many riders as possible we are already hearing the cries of gold topping out. Hell, it doesn't even look like it's getting started good yet. My suggestion is to ignore all the naysayers and let the bull make you money. All the doom and gloomers are going to do is cause you to miss one of the greatest bull markets in history.