MARKETVIEWS.TV

Interview with Ike Iossif

By Alex Pappas

10/19/2007 10:00 AM PST

Q: Every February you publish an in-depth  research  paper for gold/gold stocks   featuring   a) technical/fundamental  analysis, b) specific probability scenarios for  price pattern/directional movement/price targets -as calculated by your proprietary models,  c) the appropriate  trading strategies for each suggested outcome, and how they will  be implemented  in your managed  accounts. (see reports for 2005-2006, and 2007-2008) The purpose of this interview is to review the 2007-2008 report, would you like to tell us where you stand at the present time?

A: Of course, the  2007-2008 report  was published  on 2-16-07, it listed  three  outcomes for the next twelve months -two bullish, and one bearish, and  it was going to take until  June to determine with some degree of certainty which one of the three outcomes -if any-  was playing out. By  mid-May I advised that the evidence -up to that point in time- was strongly suggesting  that  Scenario#1 was going to unfold, and thus, going forward  -unless new data suggested otherwise-   S#1 would become the "working assumption"  when deciding  trading  strategy for gold/gold stocks in our managed accounts. (see chart below, which is the forecast shown on the report, or, read 2007-2008 report)

 To determine if a particular scenario is "in play" we continuously  examine whether its three main forecasted attributes  -pattern/magnitude/duration-  match the actual ones.

 In terms of "duration"   the S#1 had forecasted a low in June, higher prices between mid-June and early-August, a top in early-August, lower prices between early August and early September, a low in early September, sharply higher prices from early September until late October, a top in late October, lower prices between late October and mid-November, a low in mid-November, and a vertical  move from mid-November until February of 2008. (see the small arrows on the right lower corner of the chart)  

In terms of "pattern"  the S#1  had forecasted  an A-B-C-D-E-F   type, in which each  successive high, is higher  than the previous one, and also, each successive low, is higher than the previous one. (see thick blue line and red capital letters marking  highs/lows in the chart below.

In terms of "magnitude" the S#1 had forecasted  the lowest low to be at 115 (+/-5 pts)   at point "A" then  a high at point "B" at 135 (+/-5 pts), a low at point "C" at 127 (+/-5 pts), a high at point "D" at 175 (+/-5 pts), a low at point "E" at 160 (+/-5pts), and a high at 210 (+/-5 pts)

TRADING STRATEGY BASED ON FORECAST BY S#1

The  forecasted pattern  by the  S#1   -because of its successive higher lows- creates  three  natural low/risk entries at points "A" "C" and "E" Therefore, our  plan was to commit about 40%-50% of our capital at point "A"  and then add another 25%-30% at points "C" and "E" which would have given us a fully invested position.

..............................................................................................................

ACTUAL PRICE ACTION

By mid-June   the actual price action appeared not only  to be unfolding  as it was forecasted by the S#1, but also it was doing it in a more bullish manner. The S#1 had estimated the June low to come at 115, it actually came  20 points higher at 135. The XAU rallied into July as expected, and to our pleasant surprise,   the actual  July high came also 20 points  above the forecasted one. At that point, we had another  confirmation that  the  "pattern" and the "duration" of the actual move  were playing out as forecasted by the S#1, while the  lows/highs  were 20 points higher than forecasted, signifying  "strength."   

At that point -as we indicated in our  emails to our clients-   we were looking  for  a pullback to  point "C" in early August  to add on to our positions, as per the scenario that  had been unfolding. However,  in early August all the markets  tumbled  sharply because of concerns about  sub-prime defaults. The XAU instead of making a higher low, it made a lower low,  violating the "higher highs/higher lows"  attribute of the forecast, which in turn, negated the validity of the forecast, until such time that new data  re- confirmed it.  At that time, there was no way of telling whether the August lows signified an "aberration" and the  previous bullish pattern  pattern would  re-emerge, or, the XAU  had  entered a   bearish phase. 

So far it appears that   the  action in August may had been an aberration caused by an exogenous event, because   the XAU has rallied  back up to point "D" at 175, and it has done it by mid-October -matching the forecast by the S#1. If that is the case, then the XAU  will  turn down shortly, and it will test support    point "E" at 160 (-/+ 5 points) A downside reversal at point "D" followed by an upside reversal at point "E" will provide us with confirmation that indeed  S#1  is still valid, and point "E" constitutes a  low risk entry. 

If S#1 is still valid, and presently unfolding, it means that the XAU will rally from 160 (-/+ 5 pts) to 230 (-/+ 5 pts) for a gain of roughly  70 pts. However, we will not have confirmation until the XAU pulls back from current levels to approximately 160 (-/+ 5 pts) and then it reverses to the upside.