29. March 2023

A Signal Called Fishhook in Gold

August 26, 20224min
A Signal Called Fishhook in Gold

Gold prices bottomed on July 15, 2022, and moved up nicely to a top on August 12. That up move in prices was accompanied by an up move in the McClellan Price Oscillator, which is the difference between a 10% Trend and 5% Trend (19- and 39-EMA) of closing prices. It is a cousin of the McClellan A-D Oscillator, which is based on the daily difference between Advances and Declines.

The Price Oscillator has a fun trick it shows us every so often, where it creates what we call a “fishhook” structure. We are seeing one at the moment in the chart of gold’s Price Oscillator. A fishhook occurs when there is a temporary reversal in the direction of the Price Oscillator’s travel, and that reversal itself gets reversed. It signifies that the forces of reversal have failed, and that opens up the door to the prior trend to reassert itself with renewed vigor.

A fishhook will ideally occur with the Price Oscillator about halfway back to the zero line (or Summation Index neutral level) from an extended reading, but they can also occur at other places and scenarios on the chart. The key is a temporary reversal that gets aborted. And it is important that we see the Price Oscillator reversal get aborted. If it does not reverse again, and just continues in the new direction, then it is not a fishhook.

Not all fishhooks lead to big powerful moves, but the potential is there, which is why they get my attention when I see one. 

Perhaps the biggest and most dramatic example of a fishhook was the one that occurred just before the 1987 crash. This next chart shows the fishhook that appeared in the chart of the NYSE’s McClellan A-D Summation Index, which is effectively a Price Oscillator for the cumulative daily A-D Line.

The Summation Index started falling from right after the August 1987 price top and, on the way downward, it turned up for 6 days as stock prices made a failing attempt to reverse and go higher. That Summation Index upturn peaked on Oct. 5, 1987 and, two weeks later, we saw the big ugly crash. Then after the Oct. 26, 1987 retest bottom, there was a failing rally attempt that turned down into the Dec. 4, 1987 retest bottom, and that latter one saw a fishhook develop as the Summation Index was headed back toward the +1000 neutral level. 

When that December 1987 fishhook turned back up again, it unleashed a more powerful up move. That is the potential which a fishhook structure conveys. Prices do not always deliver on that potential, but the possibility is there. 

As of Aug. 25, 2022, the Price Oscillator for gold prices has turned up again, making for a fishhook structure in gold’s Price Oscillator, which conveys the message that there is the potential now for a more powerful up move in gold prices.