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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: yard_man who wrote (5085)	1/14/2004 4:41:44 PM
From: mishedlo	Read Replies (3) \| Respond to of 110194

Mean reversion A post from Horti on the Fool Hi: Mean reversion dictates that an anticipated bear rally in the USD is imminent and a corresponding pullback in gold will ensue. It is based on the 200 mda (moving daily average) and boy... it is deadly accurate a far as an indicator/precursor to pullbacks. When gold gets 15% above the 200 dma, it enters the danger zone. That is where we are at now. The last 3 times we've hit this +15% level have generated a pullback in gold THEN a rally in the USD. Its this scenario that we find ourselves in now and why the technical traders -as well as the small traders such as ourselves- are holding back. This (mean reversion phenomenon) will stymie a runup in the share price of BM IMHO. It also means that smaller investors are setting their stop losses tighter which will also trigger a pullback. I don't think that BM is going to be affected too dramatically but others that have really soared in the past 2-3 months will revert noticeably. From an investors point of view entry points are crucial in order to maximize profits. Thus I think that most are taking a wait and see attitude. The other side of the coin is beware the bull trap in Big Caps and Blue Chips that will accompany this Bull Trap. It will be very short- lived and will not break the overall macrotrend for gold's ascent. Curiously, the 200 mda for gold has reached the $375/oz level and appears to have found a support level while the USDollar Index has averaged down to 90 down from 115 in early 2002 when Gold was $275/oz at the 200 dma. Thus gold is up 36% in that time (< two years) and the USD Index is down 22%. Note that everytime that the USD Index hit 90 it rallied- May 2002 and July 2003. We are at this point NOW. See recent article by Adam Hamilton http:www.zealllc.com for more details and the charts. So there....you're warned. Cheers, Horti