Gold in a Pennant Race

From thestreet.com 7/2/08

Gold is breaking out of its pennant just as everyone begins to gear up for the Olympics in Beijing. As we head into the July Fourth weekend, the Olympic trials -- the competition to decide who will represent the nation in the games and go for the gold -- are heading down the homestretch.
Let me explain the logic and psychology of a reliable technical pattern -- the pennant. After a market, in this case gold, makes a big move in either direction, it starts to get volatile. Big moves up are met with big moves down.
Both bulls and bears are confident and take turns pushing the price up, then down. This goes on for days, but as time passes, the trader instinct begins to kick in ... "Why isn't this following through?"
The moves up and down become less and less exaggerated. The pattern that forms is called a pennant because the widest part of the flag is at the beginning and eventually closes in on a small point at the tip.
Pennants are great predictors of a substantial price move, but there is a catch. We don't know which direction the big move will go. The psychology again: The pent-up bulls and bears are ready to add conviction, but only one will win and we aren't sure which one. So, we wait for the "breakout." ..................................
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