Tuesday, July 16, 2013

A Gold Index Island Reversal:

The technical description of an island reversal is too old to be found in many of the “modern” books on technical analysis.

Originally found in the classic Edwards and Magee Technical Analysis of Stock Trends (1948) the island reversal is, “A compact trading range, usually formed after a fast rally or reaction, which is separated from the previous move by an Exhaustion Gap, and from the move in the opposite direction which follows by a Breakaway Gap. The result is an Island of prices detached by a gap before and after. If the trading range contains only one day, it is called a One-Day Island Reversal. The two gaps usually occur at approximately the same level. By itself, the pattern is not of major significance; but it does frequently send prices back for a complete retracement of the Minor Move which preceded it.

We can see this pattern in a number of gold stocks as displayed in our GDX chart

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