“Hegemony is a concept that has been used to describe and explain the dominance of one social group over another, such that the ruling group or hegemon acquires some degree of consent from the subordinate, as opposed to dominance purely by force.” – wikipedia.org

About a month ago, I wrote about the issues facing gold.  Despite the printing presses whirling at an every-alarming rate by our treasury secretary Paulson, the precious metal seems to be unable to advance any significant amount.  Perhaps this is due the perceived notion that the US is now firmly entrenched in a deflationary environment similar to what Japan experienced throughout much of the 90′s.  The hard cold numbers are readily available for examination, and it appears the gold delivery scheduled for November 28, 2008 didn’t inspire a run on bullion that many expected.  Quite the opposite, gold tanked a solid -5% or -$41.6 yesterday.

What can we gleam from the price action?  The initial bounce from the October spike low of $681 to $775 three days later could be considered a nice ‘A’ wave.  ‘B’ wave lows were established around $698 by mid-November, followed by an advance to $833 in another three day wonder – wave ‘C’ (measured move approximating $100 push upward).  Put all the pieces together, and it adds up to another bear flag pattern on the daily charts.  In the larger context, it is a gartley pattern with a rebound very close to a 62% Fibonacci retrace. Examining the weekly chart, gold was barely able to lift into the midpoint of a well-defined downtrend channel.

As mentioned in the last post, gold would need to see a significant reduction in the forward hedging activity before a buy was initiated. This has yet to occur, and quite to the contrary it seems that the forward selling in bullion is picking up each time the price spikes higher. Thanks for nothing, hegemon JPM.

Both the hedged and unhedged gold miners indicies have encountered downtrend channel resistance on their respective daily charts. The chart patterns can also be considered bear flag formations. Sooo, the wait continues for a solid wolfewave pattern to form in the GC futures contract and XAU / HUI indicies – only then will I consider this bear market in gold to have run to its conclusion.

The markets have lifted for 5 days straight, with the media cheering the largest advance since 1987. Now it is time to get back to business. The astrological influences will be getting progressively worse into mid-December as the markets are subject to set of very difficult aspects in the coming days.

1:40pm update – Markets have continued to drift lower, and the noon swoon has produced a small bear flag in the form of a measured move bounce. The chart below is the ES eminis (S&P futures contract). Bernanke is schedule to speak in a few minutes and will undoubtedly be met with a big ‘boo’ from the crowds.

4:00pm update – Markets end with a resounding thud.

I never imagined it was possible to trade through the historic ‘crash’ day that the media promised on the open. For pattern traders, the name of the game is measured moves in the form of bull and bear flags, but Gartley pattern setup is giving the best edge.

The afternoon session presents a bull Gartley pattern.

End of day structure