Trading Diary
September 15, 2003

Gold
New York (13.30): Spot gold is steady at $375.10 after repeated tests of resistance at 382.
The primary trend is up.
Price has broken above a symmetrical triangle formed since the start of the year. If gold rises above resistance at 382, the target is the 10-year high of 420.

The intermediate trend is up but the index has broken its upward trendline.
The primary trend is up. 

MACD (26,12,9) has crossed to below its signal line; Slow Stochastic (20,3,3) is below; 
Twiggs Money Flow has crossed to below zero, after a bearish divergence.

Market Strategy
Short-term: Long above 3202.
Intermediate: Long if the index is above 3160.
Long-term: Long if the index is above 2978 .

Double bottoms
I have always followed the maxim: the wider the base, the stronger the signal. But Thomas Bulkowski (Encyclopedia of Chart Patterns) points out that narrow double bottoms have a lower failure rate, when measured prior to breakout, than broader ones. He even extends this to what he calls horns: double-bottom patterns that form over no more than 3 weeks. Two such patterns popped up in my stock screens for wide-ranging days:

Corporate Express [CXP] formed a narrow double bottom at [a] and [b], signaling the start of a strong rally. 
Price has now consolidated below resistance at 5.50, a bullish signal. Because of the number of false breaks, I prefer to accumulate at least 1/3 of a position on such a bullish consolidation, prior to the breakout, if there is a dry-up of volume or volatility near the support level. Tight stops can be placed just below support.

Harvey Norman [HVN] completed a similar narrow double bottom at [a] and [b] below. 
Price has now broken through resistance at 2.50 and may present an opportunity for traders to increase their positions on a pull-back to test the new support level.

If we zoom in on the daily equivolume chart at the previous peak, we see that volume was fairly evenly distributed between 1.00 and 1.02, with little changing hands at 1.05. So, the strongest resistance level is likely to be the round number: 1.00.

On the daily volume chart we see further evidence of support/resistance forming in a narrow band, rather than at a single line.
From the early 2003 peak, we know that resistance is likely to be strongest at 1.00. Price encounters some resistance with a false break at [1], and again at [5], before the eventual breakout on strong volume. But further resistance is then encountered at 1.05, the high from the previous peak, with strong volume and a very weak close at [6].
What we have is support/resistance forming at two closely related levels, like the two lines of a railway track: the lower line of resistance from the highest close or round number of the previous peak; the upper line forming at the highest high of the previous peak.

The same pattern forms in the shorter term. If we look at [0], the high is at 0.94 but the highest close is at 0.92. When price retests support, we find a break below 0.94 at [2] but selling halts at 0.92 with strong buying forcing a weak close at 0.96. Thereafter price respects the upper line of support at 0.94.

This railway track view of support/resistance can be very useful when placing stops. Always select the most extreme line: the higher line when placing a stop above resistance; and the lower line when placing stops below support.

It appears that AWE will consolidate between 1.00 and 1.05, a bullish sign. A breakout above 1.05 will be a further bull signal, while a fall below 1.00 would be bearish.