GSS - Sector: Basic Materials---Industry: Gold & Silver

[Melf Elf]

Golden Star Resources (GSS), after dropping 73% from December 2, 2003 to May 2, 2005, looks to be shaping up nicely for a rally.  Sorry that I don't know how to post charts.  A picture is worth 1,000 words!  

Here are the patterns and upside targets:

Pattern #1:  Descending Triangle

Data Points:

Connect the highs of January 25, 2005...April 7, 2005...May 10, 2005.  
Connect the lows of March 2, 2005...May 2, 2005.

The May 10, 2005 tag of the upper trendline validated the trendline.  You need at least 3 data points on any trendline for it to be valid, otherwise, you're just arbitrarily connecting any two data points and personally assigning some meaning to it.  We need the market to tell us that the trendline is meaningful by showing us that there is support or resistance there.

On May 10, GSS failed the test of the trendline, which validated it as meaningful resistance.

May 23, 2005, GSS gapped higher out of the pattern, and closed at the high of the day.  I would like to have seen more volume, but it was a bullishDescending Triangle pattern breakout nonetheless.

Descending Triange Pattern Breakout Targets IN PLAY:

1. The January 24, 2005 top of the Descending Triangle: 4.08
2. The height of the pattern (4.08 high - 2.33 low = 1,75 pts....added to the point where GSS broke out on May 23, 2005 at 2.62) 1.75 points + 2.62 = 4.37

After the Descending Triangle breakout, GSS rallied toward the most recent high of 3.10, which was on April 7.  It rallied to 3.05 on June 2, 2005, forming:

Pattern # 2 - Small Ascending Triangle

Data points:

Connect the highs of April 7 and June 2
Connect the lows of May 2 and May 16

That pattern broke out on June 10.  Again, I'd like to see more volume.  The breakout got violated on the June 14 close below the breakout, but we've remained above the top of the pattern ever since.

Small Ascending Triangle Breakout Target IN PLAY: 3.82
(Height of the pattern...3.10 - 2.33 = 0.77...added to the breakout at 3.05.  3.05 = 0.77 = 3.82)

Pattern #3: Large Ascending Triangle

Data Points:

Connect Highs of March 10 and June 16
Lows are the same as the Small Ascending Triangle.

It hasn't broken out.  If it does, it also puts Target: 4.37 IN PLAY, same target as the Descending Triangle breakout.

[cumulina]

With compliments

I save the "picture" to a file on my desktop, click on "additional options" under the message I'm writing, and find the "picture" in the file.
It took me a while to get it right, I was afraid to upload my whole harddisk...but it seems to work.
Have fun!

I still haven't figured out how to edit and draw lines on the charts - ask EliteG, he can do all those nifty things

Cheers!

[eliteG]

lol, nifty things 101

1.  You can pay for a stockcharts.com subscription.  You can even get realtime and therefore have a backup realtime system if your system goes down.(this has happened to me)  I pay around $30 a month for it.  You can draw trendlines, arrows, circles, highlight, fib retrace, put notes, and a lot else on this chart.  You can upload the annotated chart to a list and it will update with the movement of the stock.

2.  The Free Way:  open up the image you have saved in paint.  Use the line tool in paint to draw in lines.(make the lines thicker)  Circle tool is useful.  Text is a pain but doable.

**saving an image** - if you have a chartup on the screen that you want(or any image) you can capture it with 1) a capture utility or 2) by pressing the printscreen key on your keyoard.  When you press the printscreen key on your keyboard it saves the image to the clipboard.  You then open up paint or some other image editing program and paste it in there.  You can paste by holding the ctrl key down and pressing V at the same time...or look in the Edit tab.  Save the image and remember where this is!  Oh save as a.jpg or .gif  You cannot post an image that is bigger than 150 kb i believe.

**to post image** - When you are writing a post in 3stocks there is a button underneath the text editor called Additional Options...you hit that and then hit browse to locate the chart saved on your computer.  If you want to attach more, hit the more attachments button.

Thats what I do. 

Melf Elf - do you use log scale or linear charts?

[Melf Elf]

Thank you, Cumulina and eliteG for helping me.  Applaud you both.  And, thanks for the chart, Cumulina.  It gives a picture of what I described, even though the trendlines aren't drawn.  No problem.  People can "eyeball" it.

I copied the posting directions from you both.  I have a friend who is very good at understanding computers, so hopefully he can read the directions, and help me figure it out   

I have Metastock charts.  I pay $35/month to download the data, so I'd like to use those charts, if I can.  I already have trendlines etc. drawn on my charts, so it would save me time.  And, $30/month additional for Stockcharts 

eliteG, I generally use linear charts for stocks like General Electric (GE) that don't have big percentage moves.  For a stock like AKS that rallied almost 1,000% from September, 2003 into its February, 2005 high, I use a log chart.  It puts the huge percentage move into perspective.  On a log chart, a move from 5 to 10 is 100%, and a move from 10 to 20 also is 100%.  Equal weighted moves, even though the entire move really is 300% from 5 to 20, not 200%  Log charts make those moves look less parabolic.

Sometimes I'll try both, to see "what works."  If either of them shows me three or more hits to a trendline, I'll use that.  I consider validated trendlines (3 or more hits) to be important because the stock clearly is responding to it on the third hit (and  on any additional tags) as support or resistance.

GSS is a good example.  There are 3 data points on the January 24, 2005 down trendline (listed above in my origianl post).  When GSS broke out on May 23, 2005, it was on a gap up opening, and the stock finished at its high of the day.  That validated trendline was important, and players jumped in when they saw that resistance get broken to the upside. 

Good example of a "gap and go," too.  It's okay to buy those when it's a pattern breakout, even though we've all read, "NEVER buy a gap up opening."

Thanks again for you help!

[setravis]

May I get in on this? I guess we all can learn from each other by discussion.
IMHO....I see a , Falling Wedge (reversal).Which is a bullish pattern that begins wide at
the top and contracts as prices move lower.The price action forms a cone that slopes down as the reaction highs and reaction lows converge.Falling wedges definitely slope down and have a bullish bias.but this bullish bias cannot be realized until a resistance breakout.
I placed the lines on the chart from the points you gave in pattern #1.Hopefully I accomplished this feat.

In my way of thinking, I come to see the Descending Triangle as a bearish formation that usually forms during a downtrend as a continuation pattern,and this pattern indicates distribution

Giving meaning to the Ascending Triangle (continuation),is a Bullish formation that usually forms during an uptrend as a Continuation pattern and this pattern indicates accumulation.

This is just IMHO.
But if we all can debate,we can learn from each other.I know I have learned from other members here already.

[setravis]

Oh, forgot...I do like your stock find and have placed it on my watch list for a possible buy.
I do applaud you.

[eliteG]

I think the descending triangle is usually broken to the downside but if broken topside can be a powerful long move.  Vice-versa for ascending triangle.  In fact any set pattern that gets broken n the opposite direction can lead to a very powerful move.  Especially true with candlestick patterns.  You see a hammer bottom get broken to the downside..it could definately lead to a good short.  The flip side 

This is another take on the chart:

[setravis]

I always like to read what you have to say.
I like the way your head hammers out things.The debate of the matter, will help us all when it comes to stock picking.Let the knowledge of others sink in our own skulls.
The final out come we can all make more $$$$$$$$$$$$

[eliteG]

I always like to read what you have to say.
I like the way your head hammers out things.The debate of the matter, will help us all when it comes to stock picking.Let the knowledge of others sink in our own skulls.
The final out come we can all make more $$$$$$$$$$$$

thx setravis, way to pick out the bullish falling wedge, and I agree debating T/A can only help. 

[Melf Elf]

May I get in on this? I guess we all can learn from each other by discussion.
IMHO....I see a , Falling Wedge (reversal).Which is a bullish pattern that begins wide at
the top and contracts as prices move lower.

Setravis,

You are absolutely right...Pattern #1 that you have so beautifully drawn and posted (thank you, and applause), is, indeed, a Falling Wedge Reversal, not a Descending Triangle, as I said.  I often say one, when I mean the other.

Wedges and Triangles are tricky.  They usually are continuation patterns, and are resolved in the direction of the current trend, but they also can be reversal patterns.  In GSS, for example, there was a symmetrical triangle that formed between November 17, 2004 and February 2, 2005.  The trend in the stock was down.  On February 3, GSS gapped down out of the symmetrical triangle from 3.54 and continued its bearish trend into the May low of 2.33.

The falling wedge reversal that you have shown on your nice chart (breakout was May 23) still could end up being bearish here.  We got a "relief rally," so to speak, but the bearish trend could continue, especially if we start doing things like breaking that uptrend line on eliteG's chart (thanks, eliteG!).

With Falling Wedges, one of the things that I look for is whether or not it "morphs" into other pattern/patterns.  In this case with GSS, the Falling Wedge has "morphed" into two Ascending Triangles.  In other words, the Falling Wedge is now part of those two patterns.

If we break the up trendline on eliteG's chart, we "could be" going down to form the right shoulder of an Inverse Head & Shoulder pattern.  The bottom of the left shoulder would be the low on March 10....the neckline would be March 10 (3.37) and June 16 (3.32).  Another possible "pattern morph." 

When you get these "patterns within patterns," prior to a breakout, the stength of the "nested patterns" often leads to a nice move.  The more "nested patterns" that there are, the better.  "The bigger the pattern, the better the breakout." 

This pattern in GSS has been forming only over a few months, so it isn't suggesting anything huge.  But, maybe tradeable.  If we rally to the top of the wedge at 4.08, for example, then do more consolidation over the summer, then we might get a better rally later on.

[setravis]

Melf Elf,
Thx for the reply. I like the way you think,and put down on paper what you have to say about a subject.Picking up on the knowledge of others helps me to become a better market player.I like to read and absorb this knowledge.
A well said post. Keep up the good work.
Applaud.

[eliteG]

nested patterns and morphing...thats great feels like I'm talking to a fellow engineer, lol

[Melf Elf]

BTW (by the way), I started watching the gold stocks a little more closely after I read an article (May 10) in Forbes Magazine by Jack Adams in which he said that he expected a rally from out of nowhere, like the one from the May, 2004 low.  

The $HUI chart (Gold Bug Index) looked horrilbe, so I at least agreed with him that a rally would have to come from out of nowhere    

On May 19 in Forbes, Curtis Hessler said that he saw $500 gold because the current bullion/XAU ratio of 5.25 was a screaming buy.  I don't know anything about that, but I like to see what happens after I read stuff like that.  Two bullish calls from Forbes.  Okay, I watch it.

The HUI and XAU both made "V" bottoms on May 16, right between the dates of those articles.  So far, these guys made pretty good calls    

On June 7, Goldman Sachs downgraded the gold stocks.  Interesting.  What happened after that?  Newmont Mining (NEM), the 500 lb. gorilla in this sector, completed the right shoulder of a "mini" Inverse H&S pattern two days after Goldman's call, then it broke out to the upside on June 16.  Hmmm...the market clearly didn't agree with Goldman on that one.

After breaking out, NEM only got to the April 22 gap of 40.23, and hasn't been able to get above 40.34.  There's alot of price resistance/supply above that level. NEM also put in some bearish-looking doji stars last week, so it might need to do some more work, but at least it stopped going down, and it did something bullish (Inverse H&S breakout on June 16)

If you look at the rally in NEM from May, 2004 to November, 2004, it wasn't pretty, pattern-wise, but it rallied 50%.  Maybe the Forbes guys will be right.

Just some anectodal stuff on a Sunday...

[setravis]

I hear you Elite one!
I'm just an old southern boy.Nested patterns and morphing.
That "Morphing", must be what we old southern boys call one of them $2 words.
I like it....I love.... I want some more of it!
Keep up the good work guys......I'm just picking at you!

[Melf Elf]

nested patterns and morphing...thats great feels like I'm talking to a fellow engineer, lol

Not me!   I have to call in the Army Corps of Engineers to screw in a light bulb for me