**Introduction:**

Building upon the previous three studies on gold, we conclude with a *technical analysis* of gold’s secular bull market trend since 2001. We will use *time series analysis* to determine gold’s secular trend growth rate, and historical volatility to set the trend boundaries. The trend and its historical boundaries will offer a reference point for identifying *where we are today* – a first step in any decision making process.

Technical analysis, with its proclivity to market timing, is a critical part of the investment decision process regardless of methodology or time horizon. I hope that this article will make it increasingly obvious how closely related technical analysis is to fundamental analysis and how the two disciplines are indeed inseparable.

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Tags: chart pattern, cross-sectional regression, cyclical market, high-low-close, line chart, log-linear, moving average, price channel, regression analysis, resistance, secular market, serial correlation, support, technical analysis, time series analysis, trend line

Technical Analysis | Sargon Zia | October 31, 2011 9:39 pm | Comments (3)

**Introduction:**

Using correlation and regression analysis, we learned in a previous article that monthly returns of gold since 1979 have not been statistically correlated with U.S. inflation or equities as represented by the CPI-U and the S&P 500 index, respectively. And using long term price charts, we learned in another article that the long term trend in gold prices has been strongly related inversely to the secular trend in equities.

In this article, we will examine the effect of adding gold to a diversified equity portfolio using another statistical tool, *mean-variance analysis*.

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Tags: correlation, diversification, efficient frontier, expected return, gold, mean-variance analysis, minimum variance frontier, minimum variance portfolio, S&P 500 index, S&P500, secular market, SPX, standard deviation, trend analysis, variance

Fundamental Analysis | Sargon Zia | October 23, 2011 11:28 pm | Comments (5)

**Introduction:**

In part-1 of this study, we considered the question of whether monthly returns of gold were correlated with those of inflation or equities in the United States of America. We analyzed three decades of monthly returns using two statistical techniques, correlation and regression analysis. Were you surprised by the results?

Here in part-2 we will investigate whether there has been a relationship between the long term price trends of gold, inflation, and equities. But before we do, let us first clearly distinguish between “*correlation of returns*” and “*price trends*“.

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Tags: asset allocation, consumer price index, correlation, correlation coefficient, CPI-U, cyclical market, diversification, gold, gold standard, inflation, logarithmic, S&P 500 index, S&P500, secular market, SPX, trend analysis

Fundamental Analysis, Technical Analysis | Sargon Zia | October 16, 2011 3:03 pm | Comments (3)

**Introduction:**

No doubt you have often heard it stated as a matter of fact that gold is a hedge against inflation or, what may at first glance seem synonymous, that gold is correlated with inflation. Have you wondered to what degree this may be true, if it is true at all? Perhaps curiosity about gold has been piqued in light of recent record gold prices coupled with economic conditions in general.

In this first of two articles we will assemble and analyze data describing the statistical correlation between the monthly returns of gold, inflation, and equities. And in part-2 of this study we will compare the long term price trends of gold, inflation, and equities. Read more »

Tags: analysis of variance, ANOVA, asset allocation, Bretton Woods, coefficient of determination, confidence interval, confidence level, consumer price index, correlation, correlation coefficient, CPI-U, cyclical market, diversification, gold, gold standard, hypothesis test, inflation, logarithmic, regression analysis, S&P 500 index, S&P500, scatter plot, secular market, SPX, trend analysis, variance

Fundamental Analysis, Technical Analysis | Sargon Zia | October 10, 2011 9:18 pm | Comments (3)

**Introduction:**

The principles discussed in last month’s articles on chart patterns, the overview and the head and shoulders, underlie reversal chart patterns in general. They apply to this article’s topic as well: *the double-top reversal pattern*.

Perhaps the most common mistake when identifying patterns is neglecting to consider the preceding trend. This is akin to neglecting the context. To emphasize an important point made in the overview article:

“Chart patterns are divided into two main groups: reversal patterns which occur at the end of a trend, or continuation patterns which reside within the trend. It logically follows then that **a prerequisite to any chart pattern is the existence of a prior trend**.”

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Tags: chart pattern, churn, consolidation, distribution, double top, neckline, resistance, reversal, S&P500, support, technical analysis, volatility

Technical Analysis | Sargon Zia | August 31, 2010 11:35 pm | Comments (1)

Myron J. Gordon 1920 - 2010

**Introduction:**

In part-2 of this series we applied the concept of the present value of *all* future cash flows in the form of the dividend discount model. A variation of this is called the Gordon Growth Model ^{1} which deals with the infinite summation problem more directly.

**The Gordon Growth Model (GGM):**

The summation in the present value model is an infinite geometric series. It can be mathematically transformed ^{2} into what is known as the Gordon Growth Model, or GGM for short. Although cash flow can be represented by several measures, let’s use dividends for illustration purposes.

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Tags: cash flow, discount rate, dividend discount model, Gordon Growth Model, intrinsic value, payout ratio, PE ratio, present value, required rate of return, ROE, S&P500

Fundamental Analysis | Sargon Zia | August 19, 2010 6:23 pm | Comments (1)

A frequently asked question in discussion groups relates to how to study for the CFA. Having taken all three levels, I would like to share my perspective.

I enjoy learning, and I don’t mind taking the time I need to understand the material. A bowl of gourmet ice cream is to be enjoyed before it melts, but slowly enough to avoid brain freeze.

When I study for the CFA exam, my objectives are to: Read more »

**Introduction:**

In part-1 of this series, we discussed the concept that a stock’s intrinsic value is the present value of its cash flows. Here in part-2 we will introduce the general form of the present value model, and discuss the dividend discount model in more detail.

The present value model discounts *all* future cash flows to determine a stock’s present value, V_{0}, which is its intrinsic value at t=0. Discounting all future cash flows necessitates using the infinity sign (∞) in the summation. The foundational formula for the present value model is: Read more »

Tags: cash flow, discount rate, dividend discount model, fundamental analysis, Gordon Growth Model, intrinsic value, John Burr Williams, multistage model, payout ratio, present value, required rate of return, terminal value

Fundamental Analysis | Sargon Zia | August 1, 2010 9:15 am | Comments (1)

**Introduction:**

We discussed important concepts common to chart patterns in a previous article. Having laid the foundation, we now focus on a very popular reversal pattern called the “Head and Shoulders”. Remember that reversal patterns are found at the end of a major trend, while continuation patterns form within a trend. Read more »

Tags: chart pattern, churn, distribution, Dow Jones, head and shoulder, INDU, logarithmic, neckline, resistance, reversal, support, technical analysis

Technical Analysis | Sargon Zia | July 26, 2010 10:46 pm | Comments (2)

**Introduction:**

Consider any field of study, and it soon becomes apparent that topics can be categorized in a nested fashion, much like a set of wooden Russian dolls. In the field of technical analysis, chart patterns are one of the bigger dolls inside of the big doll.

Having a detailed understanding of chart patterns will dramatically improve your technical analysis skill regardless of your trading time frame. The interpretation of shorter term price movement will become clearer when taken in light of the larger chart pattern.

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Tags: accumulation, chart pattern, consolidation, continuation, distribution, double top, flag, head and shoulder, island, logarithmic, pennant, rectangle, reversal, saucer, technical analysis, triangle, triple top, wedge

Technical Analysis | Sargon Zia | 10:24 pm | Comments (2)