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GOLD & METALS


Barrick Gold Stalls At Key Retracement

03/16/04 11:46:30 AM
by Arthur Hill

Barrick Gold (ABX) suffered a sharp decline in January and the current advance looks like a corrective rally.

Security:   ABX
Position:   Sell


Figure 1: Weekly chart of ABX.

As the weekly chart shows, ABX advanced within a nice rising price channel from around 14 to 23.5. Resistance around 23.5 extends back to May 2002 and this level proved itself again in February 2003. The stock broke below the lower trendline with a sharp decline on above average volume and this suggests that at least a correction is in order.

The advance was made up of five waves with three up and two down. Normally, Wave 3 is the longest in both duration and price appreciation. However, this Wave 3 was roughly equal to Waves 1 and 5. Because technical analysis is a mixture of "art" and "science," and the Five-Wave structure is quite pronounced, I find it acceptable.

After a Five-Wave advance, a correction of sorts can be expected and this usually takes the form of an ABC pattern. Wave A is the first decline, Wave B is the reaction rally and Wave C is the continuation. Wave C is often equal to Wave A and this can be used to project a downside target or even a reversal zone. As such, the projected move is to around 17.12 (23.7 - 19 = 4.7, 21.82 - 4.7 = 17.12).

Figure 2: Daily chart of ABX.
Graphic provided by: MetaStock.
 
Turning to the daily chart, we can see a classic 62% retracement and rising wedge. Both are typical for reaction rallies or Wave B advances. Also notice that ABX met resistance from the January 14 gap (red arrow). As long as the lower trendline holds, Wave B is a work in progress. A move below the lower trendline would signal a continuation lower and the start of Wave C.



Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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