On March 3, 2013, we said the following about the downside prospects for gold (article and chart found here):
“The prevailing controversy, among gold bugs, is whether or not gold stocks have bottomed. As our Gold Stock Indicator has indicated, so far, gold stocks have a long way to go before reaching lows similar to what occurred in 2008, on a relative basis. This debate about gold stocks only arise out of the fact that they have fallen so much while the price of gold has been ‘stable.’
“However, when the price of gold is viewed from the perspective of Edson Gould’s Speed Resistance Lines (SRL), we see that there is a lot room for gold to move to the downside.
“We can’t be certain that the price of gold has any further to fall. However, our experience with the work of Edson Gould cannot be ignored. We’ll have to assume that if gold breaks below $1,531 then it would be wise to build $1,179.25 into our expectations.”
The above commentary was based on the March 1, 2013 price of gold. Since that time, gold has declined from $1,582.25 to slightly above Edson Gould’s ascending conservative downside target at $1,195.25 on December 20, 2013. This was within 1.35% of the estimated target. Additionally, gold stocks as represented by the XAU Index declined –37.72%. Below is our updated review on the price of gold.
“…provided the secondary reaction can be assumed to have run its normal course, which should be somewhere between 33 per cent and 66 per cent of the total primary advance attained since the last preceding important secondary reaction.”
Rhea, Robert. The Dow Theory. Barron’s. 1932. page 58.
On December 18, 2013 (found here), we gave an assessment of the downside risk for Bitcoin in the following commentary:
“With the conservative downside target being achieved, the extreme downside target of $412.65 and the worst case level of $152.83 are all that remains.”
On February 8, 2014 (found here), we reiterated downside targets for Bitcoin:
“In many previous examples of Edson Gould’s Speed Resistance Lines, once at the extreme downside target of $412.65, the price usually reverses to the upside. However, failure to do so (reverse at or above the extreme downside target) would mean that Bitcoin could reach $385 before reversing to the upside. If the $385 level fails on the downside then $200 is assured.”
As we speak, Bitcoin sits at the $246 level.
The data that we’re using to plot the price is from Mt. Gox (found here). However, Mt. Gox has put withdrawals on hold until security issues are resolve. Because Mt. Gox put withdrawals on hold they likely avoided illegal activities like the most recent hack afflicting Silk Road 2 as reported by Techcrunch.com.
While there are other Bitcoin exchanges offering higher bid and ask prices, they cannot avoid the reality of the problems that currently plague the Bitcoin market. Leaving aside the possible arbitrage opportunity, Mt. Gox offers up the most extreme and negative price data and appears to be protecting their constituents. These are necessary attributes that make the data being offered by Mt. Gox most realistic and applicable to our attempt at analysis.
In the final review, either the other Bitcoin exchanges will drop to the quoted Mt. Gox level or Mt. Gox quotes will rise appreciably. Regardless, at the current level of $300-$200, Bitcoin is fairly valued.
Anyone venturing into the world of Bitcoin for the purposes of speculation should assume that all funds put forth will be lost.
On December 18, 2013, we said the following of Bitcoin (found here):
“…in the last 24 hours, Bitcoin has declined as low as $455. This suggests there there could be a significant appreciation from the current level as the conservative downside target has been achieved.”
The rise in Bitcoin from the low of $455 by +123% in less that one month seemed substantial enough. However, the recent declines in Bitcoin require us to reassess the potential risks and rewards going forward.
In the last few days, Bitcoin has experienced extreme volatility in its price when it fell -32.7% from the intermediate peak experienced on January 5, 2014 at $1,015. We’re now faced with the potential for Bitcoin to achieve the ascending downside target of $412.65 (now at approximately $570) followed by the worst case level of $200 (ascending red line).
In many previous examples of Edson Gould’s Speed Resistance Lines, once at the extreme downside target of $412.65, the price usually reverses to the upside. However, failure to do so (reverse at or above the extreme downside target) would mean that Bitcoin could reach $385 before reversing to the upside. If the $385 level fails on the downside then $200 is assured.
Finally, the extreme upside target is $1,606.95 and the conservative upside target is $1,071.30. These upside targets are only valid if the price of Bitcoin is on the rise above the $412.65 ascending line.
***Anyone venturing into the world of Bitcoin for the purposes of speculation should assume that all funds put forth will be lost.
Below is a chart of Best Buy (BBY) downside targets based on Edson Gould’s Speed Resistance Lines (SRL):