Weekend Report…An In-Depth Look at The Chartology of Gold

In this Weekend Report I would like to take an in depth look at gold as there could be some important developments taking place that didn’t show up until this weeks volatile swings. Keep in mind a week ago this particular pattern didn’t exist as there was no evidence in place to even speculate on what what I’m seeing right now. As you know things can change very fast in the markets especially when the volatility increases as we seen this week. One always has to keep an open mind and look at what the markets are giving us to work with.

With that said lets start by looking at daily line chart for gold that shows, after this weeks wild price swings, we maybe seeing a right shoulder being formed. What’s so important about the location of this possible H&S bottom is that it’s forming above the December inverse H&S bottom, which if our current H&S bottom plays out, it will give us a higher low and a higher high creating an uptrend. There is a technique I use, which I’ve shown you before, where I will extend the neckline to the right side of the chart far beyond the actual breakout. There is an old expression that a neckline never dies it just slowly fades away. Many times you will see an old neckline act as support long after you think it’s no longer relative. Here you can see how it has been working so far creating the bottom of the left shoulder, followed by a sharp break to form the head and then the rally back above the neckline extension rail which held support last week. As you can see the possible right shoulder is still in the early stage of development. I would really like to see some more work on the right shoulder but no closing price below the 1290 area. Just think of that neckline extension rail as a support and resistance line, below is bearish and above is bullish. If this possible H&S bottom plays out it will have a price objective up to around the 1450 area which would then give is a higher high vs the high made last August.

gold ddail line

Lets look at the same time frame using a bar chart with what I think are the most important moving averages for gold, the 50 dma, the 150 dma and the 300 dma. During last weeks volatility the 50 dma and the 150 dma held their ground while the 300 dma finally held its ground at the low last Friday. So we have three important averages holding support at the bottom of the right shoulder so far. One big down day can change all that but for right now we have to give the benefit of a doubt that they will hold until proven otherwise.

gold bar day

Along with the moving averages gold is also showing a fib 50% retrace that comes in also at the bottom of the right shoulder.

GOLD FIB

This next chart for gold is a long term daily look that shows our one year plus trading range which is hard to put a name on what type of pattern it will ultimately be. Most have been calling it a triangle which is still inconclusive as we don’t have four completed reversal points in place yet. For a long time everyone was calling it a double bottom which isn’t the case now. If the June low had made it all the way down to the bottom, at the December low, that would have completed the fourth reversal point and we could then call this one year trading range a triangle. We still wouldn’t know if it was a consolidation pattern to the downside or a reversal triangle to the upside until we seen how the price action interacted with the bottom blue rail. If the price action broke through the bottom rail this one year trading range would be a consolidation pattern to the downside. If the price action bounces off the bottom rail and rallied up to breakout above the top blue rail it would then have five reversal points and we could call the triangle a reversal pattern.

This is where it gets interesting. The December inverse H&S bottom and our current H&S bottom are exactly the same size if you measure from the bottom of the head to the right shoulder armpit. If our current H&S plays out the price action will have to break above the top rail of the possible blue triangle. As I showed you earlier the price objective for our current H&S bottom comes in around the 1450 area which is slightly higher than the previous high made back in August of 2013. If that were to occur we would then have a horizontal trading range which would look more like a rectangle than a triangle. The fourth reversal point is always the hardest to locate in real time. It’s easy in hindsight.

AAA RECT

I have never shown you this long term daily chart for gold as it’s not as pretty as I would like it to be. I can tell you that chartists are having a hard time trying to put a name on this one year plus trading range for gold as it doesn’t have all the characteristics in place to actually call it something yet.

As you know I’ve been labeling some of the precious metals stock indexes as having an inverse H&S bottom in place. As I showed you on the chart above it’s hard to put a name on this one year trading range so far. Many times the precious metals stock indexes and the precious metals will form very similar chart patterns and generally breakout about the same time. If we use our imagination I can see a double headed inverse H&S bottom that has been forming over the last year or so. There is some nice symmetry taking place where I added the neckline symmetry rail, where you take the neckline and move it down to the bottom of the left shoulder. It then projects to a possible bottom for the right shoulder if things progress that far, which they have. As you can see the June low hit the neckline symmetry rail dead on the money. Right now it looks like the neckline resistance will come in around the 1365 area which gold will have to overcome to enter into the next move higher. One step at a time.

I would like to make one last comment on this daily chart for gold that is showing a big divergence with the RSI and the bottom of the right shoulder. As you can see, the RSI at the top of the chart, bottomed at the December low along with gold. They both rallied up to the March highs where they both started to decline. The RSI declined and took out the December low while gold’s decline was very modest and made a much higher low than the December low, which so far is the bottom of the right shoulder. This is a big divergence to say the least. Time will tell how this plays out but gold will have a head start vs the RSI if it decides it wants to put on a decent rally phase.

gold inverse H&s bottom

Lets look at a few more charts for gold, in no particular order, that shows the longer term look at the bull market and some of the interesting chart patterns and moving averages that have played a key role during gold’s 14 year run. The 150 dma worked magic during gold’s bull run off the 2008 crash low. It also reversed its role to resistance several times during this bear market. Right now gold is trading back above the 150 dma which comes in at 1287 and is slowly starting to rise.

gold 150

Below is another daily chart that shows the important moving averages and what a true bull run will look like. Once a correction is over and the rally phase gets going these moving averages will start to aline themselves as shown by the rally off of the 2008 crash low to the top in 2011. You can see they also went into alinement during part of this bear phase gold has been in since 2011. What we see happening now is they are starting to squeeze together very tightly while gold is trading above all four moving averages. This is first time this has happened since late 2012.

gold many mo

This next chart for gold is a long term monthly look that shows the 10 month ema and how good of a job it has done during gold’s 14 year run showing both support and resistance. The only time it really failed on the upside is when gold had the 2008 crash and the top in 2011. You can see it has reversed its role to the downside and has held resistance since the second peak, top red arrow. Gold did manage to spike above it for a short time several months back but it couldn’t hold. Then last month gold actually closed above it ever so slightly, and as of today gold is trading about a dollar higher with two weeks to go yet for July.

gold 10 month ma

This next monthly chart for gold shows the bigger chart patterns that have formed during gold’s 14 year run. On the first chart in the post I showed you a small neckline extension rail that is helping to add support to the bottoms of the left and right shoulders. In this very long term monthly chart I’ve extended the neckline, that was part of the complex consolidation pattern, that was made back in 2008. It was made up of three different chart patterns with a H&S bottom being one of them. I drew in the neckline extension well over a year ago wondering how the price action was going to react to it. So far the neckline extension rail has reversed its role and has been acting as support for the last year and a half. I can’t tell you how important that neckline extension rail is because if it gets broken to the downside that’s when we get the flush to new lows. This chart also shows that when gold is in an impulse move up you will see a string of white candles form and just the opposite when gold is in an impulse move down, you will see a string of back candles. When you see a mix of black and white candles you know your in a trading range.

gold onthly trading range

I would like to show you one last long term monthly chart for gold that has all the chart patterns that I’ve followed through the years. I call this chart, JUST ANOTHER BRICK IN THE WALL, because it has to be one of the most beautiful bull markets in recorded history. I’ve said this before and I’ll say it again, they will look back at this gold bull market in the future and study it like we study the 1929 crash. From a Chartology perspective this is as good as it gets when you see one consolidation pattern form on top of the next, each one higher than the last. There are several bullish rising wedges that generally show up in strong bull markets. There was also a bullish expanded falling wedge that was one of the consolidation patterns made in 2008. As you can see the last chart pattern at the top of the chart is now three years in the making and is by far the biggest and longest running trading ranges for this bull market. It to is an expanding falling wedge. Is it going to be just another brick in the wall and lead gold to new all time highs or have we seen the end of gold’s bull market. Stay tuned as we follow the price action to where ever it leads us. All the best…Rambus

gold brick in thewal

PS: We’ll look at silver in depth in the Wednesday Report.

 

 

 

 

Very Late Friday Night Charts…Palladium ..The Leader of the PM Pack

Sometimes there just aren’t enough hours in the day to get everything done one wants to do.

Today I would like to look at Palladium as it has been the leader in the precious metals complex. When Palladium starts an impulse move up it usually wastes little time and rallies very strongly. Below is a weekly chart that shows the latest triangle consolidation with the breakout and the impulse move that has been in progress since the first of the year. Note the two parabolic moves with the first one starting at the 2008 low and ending at the first reversal point on the red 6 point triangle consolidation halfway pattern. After the red triangle finished building out, the second impulse move began that also went parabolic leaving the red triangle as a halfway pattern as measured by the blue arrows. It wouldn’t surprise me if the big blue triangle that Palladium just broke out of at the first of the year doesn’t workout as a halfway pattern starting at the 2008 crash low with the top at 850 being the first impulse move up.

PLADIUM

Below is a monthly chart for PALL that puts our blue triangle in perspective within the big picture. The all time high was made way back in 2000 along with the tech bubble and then crashed like just about everything else. PALL is now taking out the previous highs made back in 2010 and 2011 which is showing incredible strength when you compare where gold and silver are relative to their 2011 highs. At some point I expect PALL to start forming a possible halfway pattern after it move a little higher which we will then be able to fine tune a possible price objective. All the best…Rambus

PALL MONT

Wednesday Report…The Million DOLLAR Question…

Tonight I would like to take a look at the US dollar as its been showing a little strength lately. Over the last month or two I’ve been showing some commodities indexes that have been very weak which I think has to do with the strengthening US dollar. The move up in the US dollar hasn’t been that big yet but it could be in the beginning stages of a rally phase that could send this index higher. How high is anyone’s guess but any strength will have an impact on the commodities sector and possibly the precious metals complex. It has been awhile since we looked at the US dollar so lets take a look under the hood and see what we can make of the reserve currency.

The first chart I would like to show you is a long term daily chart we were watching very closely back in May of this year. At the time it looked like the US dollar was building out a massive H&S top formation. As you can see the neckline was broken to the downside but quickly reversed direction and rallied back up above the neckline. At the time I said that was probably a very bullish development. When you get a false breakout like that and the price action reverses quickly that is generally a sign of exhaustion. So far that has been the case.

us dollar H&S top

The daily dollar chart is really quite boring for the short term as there aren’t any good chart patterns to be seen at this time. The longer term daily chart does show a big horizontal trading range going all the way back to November of 2013 which corresponds with a similar sideways trading range for gold. It’s not perfect but you can see the inverse movements between the US dollar and Gold. If you look at the last month of trading for both the US dollar and gold, on the combo chart below, it’s very clear that they are moving in the opposite direction.

us dollar & Gold horizontal

This next chart for the US dollar I’ve been following for many years that shows a three year cycle low that comes in like clock work. It’s hard to believe that the next three year cycle low comes in on July 22 of this year. Please notice the three year cycle low in 2008 and 2011 which coincides pretty close to important tops in the PM sector and commodities. Are we going to experience the same thing again three years later from the 2011 cycle bottom? Also the US dollar is now trading above its 200 dma.  It’s something I’m keeping a very close eye on.

us dollar 3 year bottoms

If we’re going to look at the US dollar we need to take a close look at the XEU as the euro is the biggest component in a basket of stocks for the dollar. Unlike the daily chart for the US dollar, that doesn’t have a decent short term daily pattern in play, the euro does. Today it looks like the euro broke out of a H&S top with a small gap. This could be an important top that has just formed as I’ll show you in a bit as to why.

xeu day h&s top

Below is a very long term chart for the euro that shows two bearish rising wedges, one inside the other. Notice the last bar on this chart. It’s the same small gap that accompanied our little H&S top on the chart above. Now you can see why this is such a big deal. If the euro starts to drop precipitously it will have a positive affect on the US dollar which will have a negative impact on the commodities complex.

xeu risingwedges

This next chart I’ve overlaid the euro on top of gold so you can see the similar correlation. Again it’s not perfect by any means but it does give you a sense that when the euro is strong or weak so is gold. You can do the same thing with the other important currencies and get a similar result. Again something I’m keeping a close eye one.

xeu over gold

This last chart is a very long term monthly look that shows you just how precarious the situation is with the euro. I showed you a bearish rising wedge earlier in this post for the euro that just broke the bottom trendline today with a gap. This is the same bearish rising wedge only on the monthly look. You can”t see the gap on this chart but the daily chart does show it’s now breaking the bottom trendline. This could be a very big deal.

XEU LONG TERM RISINGWEDGE

Below is a very long term chart in which I’ve overlaid gold on top of the US dollar. This chart clearly shows you the inverse correlation over the long haul. It doesn’t feel like it but the inverse correlation has been pretty good since the commodities complex topped out in 2011 along with the US dollar bottoming about the same time.

gold and us dollor overlaids

Below is the CCI commodities index we’ve been following that has been showing weakness since the first of the year or so.

aa cci wee

CCI monthly look.

aa cci monthy

Lets take a quick look at copper as it’s one of the more important commodities to help give us direction. As you can see it has been building out a massive triangle pattern that started to form way back in 2011 when the commodities complex topped out. As you can see it’s testing the top rail which would be the 7th reversal point if it holds which would make this triangle a reversal pattern to the downside. On the other hand if it breaks out through the top rail that would be very bullish for the different economies of the world.

copper

The US dollar is at a critical juncture right here and now. Based on the XEU, which is just starting to break down, this would imply that the US dollar will show strength in the coming months. The weakness in the commodities complex has already shown up which is suggesting deflation is more pronounced than inflation at this moment. There are areas of strength in the commodities, such as the industrial metals, which have been doing pretty good, but other areas like the agricultural side of the commodities complex is doing very poorly. How will the precious metals complex fair is the million dollar question. Will they buck the trend and move to the beat of their own drummer? Looking back in hindsight we will know the answer to that question. Right now we have to be ever so vigilant looking for clues that may help us understand the answer to that million dollar question. All the best…Rambus