Courtesy of Doug Short.
Portfolio construction boils down to risk management — not only how much of a particular investment we should own, but also when should we reduce some exposure to a certain holdings we have.
One tool to use when deciding when to scale back some exposure is the “Eiffel tower” pattern. In other words, when an asset starts looking like the left side of the Eiffel tower, one should consider reducing some exposure to this holding, because odds are high that if you see the left side of the Eiffel tower, somewhere down the road you will see the right side of the tower (in the chart pattern)!
The first set of charts, reflects Eiffel tower patterns over the past 10-years, in concentrated/sectors arenas, for example, Tech in the late 1990’s, Crude oil in 2008, Cotton in 2011, Home Construction in 2008. Once the left side of the Eiffel tower formed, a rising wedge takes shape, then support breaks, and the right side of the tower makes it appearance.
A fair question is, are we in the early stages of another Eiffel tower pattern forming in the Gold complex? On August 19th we shared a chart suggesting that gold was nearing a key Fibonacci expansion/extension price level around the $1,900 level. It’s interesting that Gold hit the $1,900 level in pre-market trading, and USA Today ran an article pointing out that GLD had now become the largest ETF, surpassing the S&P 500 ETF in size.
Mr. Market usually doesn’t reward comfort! With GLD, which is a “sector ETF,” now becoming the largest ETF in America, does this suggest the train is a little crowded? Are we in the early stages of the left side of the Eiffel tower forming? From a risk management perspective, when the Eiffel tower pattern was at hand, it paid to harvest/reduce exposure. Is it going to be different this time around?
(c) Kimble Charting Solutions
blog.kimblechartingsolutions.com
