Eoin Treacy's view At The Chart Seminar we encourage delegates to indentify chart facts rather than to rely on technical theories or personal bias. To do this we drill through examples as if we were describing the price action to a blind person. Only through identifying the facts about price action could someone who cannot see the chart get an idea about what is actually happening.

I posted an example of this type of analysis in Comment of the Day on January 4th 2010 relating to gold. This is now available in the free archive but I thought it might be instructive to update this conversation for the benefit of new subscribers.

Gold: P&f, monthly, log scale, 10-yr weekly, 5-yr weekly and daily.

Blind Questioner: "Is it trending or ranging?"

Factual Interpreter: "Prices mostly ranged from 1982 to 2003 but the price action has been broadly bullish since 2003. The pace of the advance has picked up since late 2008."

Blind Questioner: "Is it consistent or inconsistent?"

Factual Interpreter: Broadly consistent. "To be more accurate, it has become more consistent over the last two years than during the previous eight."

Blind Questioner: "Can you explain that a bit better?"

Factual Interpreter: "A progression of higher major reaction lows is evident from 2001. These are at $330, $410, $545, $682, $1044, $1308, $1462 and the most recent low was at $1704. The last four lows have occurred since late 2008 while the first four occurred between 2003 and 2008. The pace of gold's advance has picked up over the last two and half years making the chart action more consistent."

Blind Questioner: "Can you tell me more about the reactions you describe?"

Factual Interpreter: "Gold rallied to more than $400 by early 2004 and ranged mostly above that level until Q3 2005. It then broke upwards in September and accelerated to approximately $730 by May 2006.

"The subsequent reaction found support above the previous range in June 2006 and gold moved into another lengthy range. It broke upwards again in September 2007 and rallied to just over $1000 by March 2008.

"The following reaction found support in the region of the previous high near $730 but did dip below that level briefly. It then rallied quickly back to test the high, broke upwards in September 2009 and rallied to a peak just above $1200 by December 2009."

"This pattern of approximately 18-month consolidations followed by successful breakouts in Septembers of uneven years sped up in 2010. Gold broke out in May 2010 after a comparatively short consolidation. It formed a range, with an amplitude of $108, mostly above $1200 until September 2010 then rallied persistently to $1400.

"The next reaction had an amplitude of $121 and lasted for 6 months. Gold broke upwards in March, consolidated for a month above $1400 and subsequently rallied to $1541 by May 2011.

"It then pulled back and ranged with an amplitude of $115 before breaking upwards in July 2011 and accelerating to a peak of $1913.50.

"Prices then pulled back sharply and found at least short-term support near $1700 before rallying back above $1800. This reaction is the largest in the course of what has been the most consistent period of gold's uptrend since 2001.

"All of the reactions described above have occurred one above another creating a step sequence 10-year uptrend."

Blind Questioner: "Can you tell me anything about the advances?

Factual Interpreter: "Until 2010 each ranging consolidation has been completed by an emphatic upward break and has been followed by an acceleration higher. The late 2005 and early 2006 breakout was of approximately $275. The late 2007 and early 2008 breakout was of approximately $320. The advance from September 2009 was $226. From 2010, gold has tended to pause in the region of the previous peak before accelerating higher. Measuring from the initial breakout, rallies since mid-2010 have been $220, $143 and $335. It has not been unusual in the past for gold to have a somewhat larger pause in the course of an otherwise powerful trending phase."

Blind Questioner: "What about the commonality of gold with the other precious metals?"

Factual Interpreter: "Silver and gold posted coincident peaks in 2006 and 2008. Silver took longer than gold to post a new high following the credit crisis so the relationship broke down in late 2009. However both silver and gold posted peaks within weeks of each other in late 2010 and early 2011. Silver had taken longer to recover from its acceleration earlier this year and gold moved to a significant position of outperformance until last month."

"Blind Questioner: "How has gold performed relative to a trend mean such as the 200-day moving average?"

Factual Interpreter: "Gold found support in the region of the 200-day MA on successive occasions over the last decade. The only aberration was during the financial crisis of 2008 when it spent five months below it. During that time it held the consistency of the step sequence uptrend described above. Since early 2009, the 200-day MA has proven a useful touchstone in terms of identifying potential areas of support.

"Gold has become widely overextended relative to the MA on a number of occasions. For ease of comparison let me quote the overextensions in percentage terms. These were 28% in 2006, 29% in 2008 and 26.8% at the recent peak. Previous large overextensions relative to the MA have been closed, often rather swiftly, before another successful breakout has been sustained."

Blind Questioner: "How has gold performed relative to other asset classes such as the stock market?"

Factual Interpreter: "The most common measure of gold's relative performance is the Dow Jones Industrial Average divided by the gold price. Stocks have had three major periods of outperformance relative to gold in the last century peaking in 1929, 1965 and 1999. Peaks have been successively higher. Lows representing the summit of gold's outperformance have typically been at levels below 5; 2.07 in 1932 and 1.32 in 1980. The ratio is currently at 6.36."

Blind Questioner: "Let me summarise the consistency characteristics.

"Gold exhibits a progression of higher major reaction lows
A progression of higher highs

"It previously posted a series of 18-month consolidations but the duration of consolidations has shortened over the last two years.

"The uptrend has become more consistent since 2009 which is an indication of the increasing dominance of demand over supply.

"Overextensions of more than 25% relative to the 200-day MA generally represent rarefied territory for gold prices.

"Gold has been outperforming the Dow Jones since 1999 and if previous secular bull markets are any guide, this relative performance is not yet over.

"The most inconsistent aspects are the size of the advances. The most recent inconsistency has been the larger reaction posted since the early August peak.

"Does anything in this list suggest that the multi-year dominance of demand over supply has changed?"

Factual Interpreter: "Taking a long-term view, no. The progression of higher reaction lows remains intact and gold remains a relative outperformer relative to the stock market. Over the short to medium-term, the overextension relative to the 200-day MA and the larger reaction suggest the likelihood of a reversion towards the trend mean has increased.

Blind Questioner: "In that case gold's secular bull market remains intact. The quicker pace of the advance is a positive development and signals increased bullish interest. Consistent trends are easier to monitor because inconsistencies are more readily apparent. We have apprised ourselves of the consistency characteristics therefore we can script what an eventual major trend ending might look like.

"The more than $200 reaction is an inconsistency but the broad consistency with a progression of higher reaction lows and series of ranges one above another remains intact. At present the most likely scenario is a further period of consolidation.

"Gold would need to fall below $1700 to post a lower high and lower low. A fall below $1600 would dip back into the previous range, would have posted a substantially larger reaction and would also threaten the 200-day MA. Even then, some might view such a pullback as a buying opportunity. However, a sustained move below $1475 would break the decade long progression of higher reaction lows and mark a major trend inconsistency in addition to those already mentioned.

"These points all represent potential inconsistencies which are could form part of an eventual denouement for gold. At present there is no evidence that these are about to occur and therefore the medium to long-term upside can continue to be given the benefit of the doubt.