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The Rosen Market Timing Letter: May 18, 2010

By Ronald Rosen      Printer Friendly Version Bookmark and Share
May 18 2010 11:49AM


Fundamentally Sound?

A subscriber wrote a comment about charting that made me smile.

“As I said, we all would be billionaires by just drawing lines, diagonals etc. etc., it would just be so simple.?  F. K.

 F. K.  really has a good point. I pictured some aliens from outer space looking at us characters on earth and wondering why so many earthlings keep trying to predict the future by drawing lines on their ancient and outdated machines called computers. The aliens must think we are “nuts.? I pictured the captain of the aliens’ space ship commenting to his second in command.

“There’s a character on earth who calls himself Cap’n Ron. He writes a letter and shows charts that he draws a bunch of lines on. Some people pay him for doing that and then they post charts that they have drawn lines on. Then they discuss whose lines best predict the future price of this metal called gold. Tell the chief engineer and the navigator to turn the ship around and head home. We’ll come back in a few hundred years. Maybe by then these earthlings will have progressed past drawing lines in order to predict their future. We know what their markets are going to do but they don’t. How could they not know their future when they keep repeating their behavior? We have better things to do. Let’s say goodbye to earth and head home while these characters on earth hopefully evolve into more knowledgeable creatures.?

Well, we all know evolution takes time. We also know that W. D. Gann told us that, “Time is more important than price; when time is up price will reverse.? So, since we want to know ahead of time when price will reverse, let’s get back to drawing lines! Before we do, let’s not forget that one subscriber has already drawn some potentially telling lines with a minor assist from two other earthlings named Fields and Armstrong. Cap’n Ron’s lines produce a somewhat different result.

Our friendly computer, Hal the 9000 series computer, may never have made a mistake but that surely does not apply to that earthling known as Cap’n Ron.

It seems that back in 1983 a young man who graduated from Princeton University with a major in mathematics discovered something that the aliens already knew. The market that earthlings created is a simple machine that has its turning points repeat at approximately the same time over and over again, ad infinitum. The thing that confuses them is that the prices are not the same even though the timing is the same. The long term Delta turning points for gold are depicted on this monthly gold chart.

It has been well documented through careful examination of the past that, “Although upon extremely rare occasions a second wave in an impulse appears to take the form of a triangle, triangles nearly always occur in positions prior to the final actionary wave in the pattern of one larger degree, i.e., as wave four in an impulse.?  E. W. P.

We also know through careful examination of the past that a completed wave movement has a total of five waves. After the five waves are complete there is a three wave correction. We see that on this monthly chart of gold there is a triangle in the wave four position. Therefore, it is reasonable to conclude that the next wave will be number five and complete the move. The five wave impulse ended at $1,033.90 and should be followed by a three wave correction.  Therein lies a problem. How can a correction make a new high and still be called a correction?

How can a correction make a new high and still be called a correction?

“The struggle between the two oppositely trending degrees generally makes corrective waves less clearly identifiable than impulsive waves, which always flow with comparative ease in the direction of the one larger trend. As another result of the conflict between trends, corrective waves are quite a bit more varied than impulsive waves.?   E. W. P.

There are two ways that a new high may be considered part of a corrective process.

“In expanded flats, wave B of the 3-3-5 pattern terminates beyond the starting level of wave A, and wave C ends more substantially beyond the ending level of wave A.?        E. W. P.

Expanded flat

“In a rare variation on the 3-3-5 pattern, which we call a running flat, wave B terminates well beyond the beginning of wave A as in an expanded flat, but wave C fails to travel its full distance, falling short of the level at which wave A ended.?        E. W. P.


On this gold chart we see the triangle in the fourth wave position. We see that the triangle was followed by an apparent fifth wave. The fifth wave was then followed by a three wave move down to $681.00. “Aha, here’s the rub.? This three wave move lasted only seven months. Can a seven month three wave move completely correct a five wave move that consumed more than seven years? I do not believe that a three wave, seven month correction is sufficient time to fully correct a seven year five wave bull move. If I am correct what should happen next?

If I am correct that a three wave, seven month correction is not sufficient time to fully correct a seven year five wave bull move, gold’s next move should be to complete this correction with a final corrective [C] wave down. This five wave move that is being corrected is Major Wave Three. A Major Wave Three should correct no more than 38.2 % to 50% of its entire rise. The rise began at the Major Wave Two bottom in 2001. This monthly gold chart shows a correction beginning at what I am calling the top of Major Wave Three at $1,033.90. If the correction bottoms at the 38.2% level, the bottom of the [C] wave will be approximately $735.91. If the correction bottoms at the 50% level, the bottom of the [C] wave will take place at approximately $643.50 and touch the Major Wave Three rising trend line in October 2010 at LTD # 5 low.

When there are so many brilliant MBA’s, PhD’s, economic scholars, and Wall Street  technicians from major firms like Goldman Sachs telling one and all that the price of gold will continue rising without interruption due to the virus of financial disaster spreading around the world, who is this character Cap’n Ron saying, “Not so fast.? 

He’s just a simple old “Swabby? who went to school at New York University on the G. I. bill and spent many a night studying and sleeping in the cellar of a brownstone building on McDougal Street in Greenwich Village, New York City. He got a job as a margin clerk with Loeb, Rhodes & co. He studied at the New York Institute of Finance and then finally became a stock broker. He just studied his you know what off for over 50 years, made every mistake in the book, missing not a one, and survived and prospered.  How can Cap’n Ron possibly disagree with the likes of Armstrong, Fields, Hathaway, Sinclair, and dozens of other experts? In the long term he does not disagree. In the short term he disagrees. The short term for Cap’n Ron is a [C] leg down in gold, silver and the HUI. How can he possibly say this? It’s simple, really simple because so is Cap’n Ron. He looks over his shoulder at the past and sees that in the 1970’s gold bull market the Major Wave Three corrected all the way back to its rising trend line. With his simple analysis he recalls and remembers that “what goes around comes around.? Or to be a bit more sophisticated, he believes that the aliens are correct in that they decided to come back in several hundred years to see if we evolved, learned anything, and perhaps changed our ways. In the year 2010 Cap’n Ron believes that to the highest probability the third wave of the current gold market will return to its rising trend line in a [C] leg decline because we “ain’t learned nothing yet.? Could he be wrong? Yes.

It is easy to see that Major Wave Three of the 1970’s gold market returned to its rising trend line before the huge Major Wave Five began. In other words, the old gold bull of the 1970’s got rid of every last raving gold bug before he started his journey to the moon. This was a journey that was cut short by a former Federal Reserve Chairman by the name of Paul Volcker who just happens to be lurking around the Obama White House. 

Incidentally, the current gold bull has a heck of a lot of work to do in order to get all the gold bugs off his back. A well known service that keeps track of all the gold bulls recently reported that 98% of them are extremely bullish. 

“Gold’s Wednesday closing Daily Sentiment Index (as per hit 98%. That represented an all-time record optimistic extreme that dates back to 1987 – another ‘epic’ year in markets. In other words, at this juncture, everyone holds view that gold will continue higher.?… Kitco

This chart provides a look at the 1970’s gold bull market five wave Major Wave Three and the [A], [B], [C] correction down to the rising trend line that followed.

Hey, what’s this “stuff??

“This summer the planets form a rare “Cardinal Climax? alignment, which puts financial markets at risk,? says Arch Crawford, publisher of Crawford Perspectives since 1977.  

 “The systemic risks here are of such a scope as to be considered a threat to national security?

“Strong Data, Yet Worst of Economic and Systemic Crises Lies Ahead.?    John Williams

The commercials as of May 4, 2010 are approaching the largest net short position in gold futures and options that they have ever held. They are net short 304,000 contracts.     R.L.R.

I can’t find any learned scholars willing to explain the three items posted above. Therefore I will provide my learned thought: “DUCK!!!?


Stay well,                                   


Simeon - A Picture of Patience

Welles Wilder,
Creator of the RSI, DMI and numerous other technical indicators



Disclaimer: The contents of this letter represent the opinions of Ronald L. Rosen.  Nothing contained herein is intended as investment advice or recommendations for specific investment decisions, and you should not rely on it as such. Ronald L. Rosen is not a registered investment advisor. Information and analysis above are derived from sources and using methods believed to be reliable, but Ronald L. Rosen cannot accept responsibility for any trading losses you may incur as a result of your reliance on this analysis and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. Do your own due diligence regarding personal investment decisions.