Wednesday Report : The Dollar’s Last Stand.

There is no doubt that the US dollar looks bad right now after breaking below the bottom rail of its 5 point falling wedge last week. Before I give up totally on the US dollar there is one thing I’m going to look for first. When all else fails I like to go back to the initial pattern which was a sideways trading range or a rectangle pattern. I’ve seen in the past that when you have a nice tight rectangle with a breakout above the top rail, there can be one very big shakeout move where the price action will decline back to the center mid dashed line, where final support may reside. If the dashed mid line fails to hold support then there are bigger problems. Below is a weekly chart for the US dollar which shows the price action testing the mid dashed center line.

The $US dollar daily line chart.

The daily chart below shows a potential downtrend channel with 2 blue consolidation patterns. If the blue bearish falling wedge is a halfway pattern to the downside the blue arrows shows a price objective down to the 96.20 area, which is labeled impulse move. The breakout to breakout price objective is a littler lower at 95.45. Those 2 price objectives come in pretty close to the mid dashed center line on the rectangle pattern above.

This weekly chart shows how the downtrend channel fits into the bigger horizontal trading range, which is now testing the dashed mid line. A break below the dashed mid line will most likely lead to a move down to the bottom of the rectangle.

The million dollar question remains, is the 2 year trading range a top or a consolidation pattern to the upside?

Below is a daily chart for the UUP which shows the original 5 point bearish falling wedge. I added a parallel bottom rail to the top rail which shows a possible bull flag if the bottom rail at the 24.85 area holds support.

This next chart for the UUP is the same chart as the one above, but this one shows the 2 smaller blue consolidation patterns that make up the downtrend channel up to this point.. If the lower blue bearish falling wedge is a halfway pattern between the blue bearish rising wedge, the blue arrows show a price objective down to the 24.87 area. Likewise, if the blue bearish falling wedge is a halfway pattern the BO to BO price objective is down to the 24.73 area.

This next chart is a daily look at the USDU, Dollar Index, which has a more balanced makeup of currencies. Monday the price action hit the bottom rail of the falling wedge completing the 5th reversal point. If the falling wedge is going to be a bullish falling wedge, the USDU will have to start rallying and breakout above the top rail. Note the 4 point rectangle consolidation pattern that formed on the left side of the chart. From a Chartology perspective the top rail area should hold support when backtested from above, as shown by the top rail extension line which is now being strongly backtested.

It’s been awhile since we last looked at this 40 year chart for the US dollar that shows a massive falling wedge with a breakout and 2 backtests to the top rail at 92 which is also the neckline extension line taken from the 2000 H&S top. From the 2011 low there still is a series of higher highs and higher lows in place. A break below 92 would change that.

Below is a combo chart which has gold on top and the US dollar on the bottom. Six weeks ago gold hit the top rail at the 1300 area and backed off telling us that the top rail is hot. If the US dollar on the bottom chart can’t hold the 96 area, then there is a very good chance that gold will breakout above the top rail, possibly signaling the bear market is over. To say the 1300 area on gold is important is an understatement.

This next chart is another combo chart which has the US dollar on top and gold on the bottom which shows the inverse correlation these two generally have. The last time we looked at this chart the US dollar was still trading inside the red falling wedge and gold was still trading inside the red rising wedge. The only change I made was on the US dollar chart where I made the bottom rail of its uptrend channel parallel to the top rail. Gold was already in a parallel downtrend channel.

Below is a weekly line combo chart which has the $XEU on top and the US dollar on the bottom. As you can see the XEU on top is showing the blue bullish rising wedge while the US dollar is showing the blue bearish falling wedge. I’ve extended the necklines from the previous H&S patterns, labeled neckline extension line, which can be a place to look for a reversal to occur. The backtest to the neckline extension line on the XEU would come in around the 113.10 area while the neckline extension line on the US dollar would come in around the 96.40 area. Again, the million dollar question remains, is the XEU building out a consolidation pattern to the downside, and is the US dollar building out a consolidation pattern to the upside? Whichever direction these 2 year trading ranges breakout will have a big impact on many markets.

This last chart for tonight is a ratio combo chart which has the US dollar to the XJY on top, and gold on the bottom. Keep in mind we’ve been following these major trend channels since late last year before gold hit its top rail at 1305 and declined, so up to this point they have been following the script to a tee. The big question is, will they continue to follow the script to a tee? As you can see the ratio chart on top is building out a blue falling wedge while gold has built out a blue rising wedge.

It’s not everyday that you find charts like this at a very critical juncture which can change the major trend in a big way. Up to this point nothing is broken yet in regards to the big picture, but that could change in a heartbeat.

The Dollar is now at the currency equivalent of The Little Big Horn. Stay tuned.

All the best…Rambus

 

 

 

 

Gold Update…Shaking The Tree

There is a pattern forming on gold which wasn’t there yesterday. With yesterday’s big move up and no follow through to the upside today there is a potential H&S top building out. Many times I will use a neckline symmetry line which is taken from the neckline and moved up to the top of the left shoulder to show the possible high for the right shoulder. There is another technique I use where I will use a horizontal line from the top of the left shoulder that can sometimes show the height for the right shoulder. Today’s high at 1265 matches the high for the left shoulder. I’ve been showing the possible neckline as a S&R line, but now after yesterday’s move it’s looking more like a possible neckline. The breakout will come into play around the 1220 area which will confirm the H&S top.

There is another technique I’ve shown you in the past that has to do with a wedge pattern. I’ve been showing you that gold has broken out of a bearish rising wedge with a breakout gap and a backtest today to the underside of the bottom rail. This technique I use shows how the left shoulder and head form inside the wedge and the backtest to the underside of the rising wedge forms the right shoulder. It ‘s still very early yet, but these two techniques show a strong possibility that gold may well be forming a H&S top.

Below is the PM combo chart which is showing yesterdays move may have been a strong backtest to the bottom rail of the triangle consolidation patterns as today’s price action closed below the bottom trendline. There were also several apex backtests which held resistance.

Yesterday I speculated on whether the gap opening was an exhaustion gap or a breakaway gap. With the price action trading back below the bottom rail of the triangle consolidation patterns it looks like we may have seen an exhaustion gap.

Based on that the possible exhaustion gap in play I’m going to jump back in and take an initial small position in the Kamikaze stocks. For most investors that’s almost an impossible thing to do, sell out one day and buy back in the next. Yesterday was called, shaking the bush day, to get the shorts to cover with what now looks like a strong backtest in place. Again this trade is not for everyone as the volatility is extreme in both directions. Only risk capital is used trading the Kamikaze stocks JNUG JDST DSLV and DGLD.

 

Oh Canada! A Cold Wind Blows from the Great White North

I am rushing this to you ahead of publication schedule as the message is both urgent and important.  The great risk to the world’s economic system is that of a credit contraction.  Western and Asian economies are ill equipped to absorb economic shocks as a result of their level of debt saturation.  No one knows where such a shock will come from, but we have postulated China or even Canada.  Recently Home Capital Group of Canada has suffered a full blown bank run and is in financial duress.  Is this significant?  Most would say no, however when we look at the charts of Canada’s biggest banks we see smoke billowing out.  Something is wrong here.

Gold Silver Ratio-Metalic Credit Spread

The gold silver ratio has recently triggered an early warning signal. It is indicating financial stress in the future, most likely coming in the fall of 2017.  By spiking and exceeding its trend high it is indicating credit troubles ahead.  Note the clear break out of its consolidation triangle and the 30 EMA.  Credit problems clear themselves in the fall and the GSR is indicating there is trouble ahead in the form of a credit contraction.

Note how the GSR provided an early warning of the market top in Oct 2007 and the credit crunch which started before that.  We will see that financial stocks began falling 7 months before the market peaked which is what the GSR was signaling.

Financials vs General Index- Divergence at the top.

Back in 2007 the banks stock index peaked 7 months before the general indexes.  This is what the GSR was indicating. We see it here in the below chart of the banks vs the SPX

Today we see that the bank stocks appear to have peaked 3 months ago and are putting in a divergence to the SPX.  Is this what the GSR today is forecasting?

Next we view what’s going on in Canada.  I am using Bank of Montreal as a proxy for the sector since it is the Blue Blood bank of Canada vs the TSX 60.  What we see here is a clear break from the index.  Is Canada blowing a cold wind of credit contraction our way?

Now let’s look at the major banks of Canada.  We will look first at the weekly chart then the daily.  Note how they all are pretty close to the same. They have all broken down and are transmitting a message in unison that there is something seriously wrong.  Talk about a bull trap, all these charts put in spectacular arching highs after they broke their preceding high print back in 2014.  These are all extraordinarily ugly tops with ensuing violent initial declines . Be sure to look at how the previous tops extended line (blue) interacts with the H&S tops that then developed.  The extended line acts as a neckline in most cases.  Let’s take a look.

The Bank Of Montreal

What a well formed H&S top with its NL placed right at the previous high.  This institution is the Blue Blood Bank of Canada.  This isn’t supposed to happen.  It had a nice double bottom and when it broke its previous high it should have kept going.  This chart shouts out there is trouble brewing beneath the surface.

The 30 EMA is now bending downward and has contained the price action on the way up.  Will it serve the same function on the way down?

The daily has ugly written all over it.  Check out that extended prior top line.  Price is currently flirting with the 150/200 EMA ping ponging up and down.  Note the volume churning action and OBV as well as Accum/Dist indicates heading for the exits.

Bank of Nova Scotia

This bank is also a very well healed institution.  Their is a lot of old family money in Nova Scotia.  A lot of resource financing comes from these people.  But this chart is also announcing something  wrong here.  Note the second top could only just peek above the previous high.  It has built out a clear H&S and has broken it and is in the BT phase underneath a declining 30 EMA of course.

The daily makes it clear that this chart is living on borrowed time.  It could only close above that prior peak for 4 closes before it gave up.  It’s been in BT mode below NL 2 for 14 trading days now..  The candles burning, how long do you think it can defy gravity?

Toronto Dominion Bank

Solid as a rock as they say.  That’s what one imagines when he thinks of TD Bank.  I opened my daughters brokerage account with TD Ameritrade because I view the bank as so solid.  But what we have here is another spectacular failure above the previous high.   This one actually uses the previous high as its neckline, not very original or I guess the ultimate S&R level.  No broadening top on this one just a violent crash down through support.  What’s this all mean?

OMG talk about borrowed time! This chart is simply painful to look at.  For anyone who doesn’t think that 50/200 EMAs are significant show them this chart.  See how those averages have contained price since we started down.  Now tucked up under the 200 EMA, how long until it gives it up?

Canadian Imperial Bank CIBC

Haven’t heard of them?  Where have you been?  CIBC was named the strongest bank in North America and the 3rd strongest bank in the world, by Bloomberg Markets magazine. So they are first stringers obviously, but the chart is saying somethings wrong here too.  Now well below its 200 EMA and all averages in decline mode.  Don’t miss those volume spikes.

150/200 EMA rollover:

So what’s the bottom line here?  I think the language of the market is telling us that a bear market has begun up there in the great white north.  The financial sector is sniffing it out.  When governments become so complacent that they kick out the beams of support from their bubble real estate market by slapping on a 15% foreigners tax these things can unravel quickly.   We got the early warning from the GSR and the financial stocks to these big powerful banks are separating themselves from the TSX index.  This appears to be no “mid-course” slow down this looks to be the real McCoy….er  real Mackenzie.

But there is good news.  The good Prime Minister Mr Trudeau has promised to ease your pain if real estate is collateral damage to any credit crunch by legalizing reefer madness by July.

 

UUPdate…

Below is a daily chart for the UUP which shows the price action testing the bottom rail of the falling wedge. There are 5 completed reversal points which technically, at the moment, makes the falling wedge a reversal pattern to the downside if the bottom rail gives way.

The weekly chart shows the backtest to the top rail of the nearly 2 year trading range which is critical support that needs to hold.

UUP long term weekly chart:

 

Home…

I got in late this afternoon from a 7 day cruise to the Caribbean and will be ready for action tomorrow. One thing I learned about a cruise ship is to take some warm clothing with you as they keep the air conditioning really cold. We had a great time, but it’s nice to be back home.

Again, I want to thank Sir Plunger for his great Weekend and Wednesday reports. His love and understanding of the markets comes through loud and clear in his insightful commentary. I’m grateful he took up the challenge of being a contributing writer for Rambus Chartology when I asked him to join us several weeks ago. We’ve only seen the tip of the iceberg of his knowledge and passion for the markets. Welcome aboard Sir Plunger. All the best…Rambus

Plunger’s Big Trade Update & GDXJ update

With Rambus at the mercy of a spotty Internet connection I thought I would put out this mini update on Oil and the PM stocks.

Editor’s Note: Plunger has joined Rambus as associate writer at http://rambus1.com/ Now members have access to two dynamic authors.

GDXJ-

One can see from Rambus’ below charts that it appears the PM stocks are still early on in the decline process.  I would agree, but of course stocks don’t move in a straight uninterrupted line.  Therefore I would suggest we are due for a bit of an upward retracement soon.  I claim this on the following basis: RSI is now significantly oversold and is now putting in a positive divergence (note red line).  Also stochastics are extended to full range and appear to be in the first stage of turning up.  We have reached its measured move as depicted.  Also its reached the boundary of its Bollinger Band, (altough not outside of it).   As a result I covered my short today and actually went long JNUG and some selective shares.  I am looking for no more than a bounce up.  It may look like a BT to the red bear flags Rambus has drawn in the below charts.  I am not advocating others do the same just discussing trading opportunities.

I emphasize I still see the bear in charge of this sector.  At best we get a little bounce here. I acknowledge taking a long position here may be a fools errand, I hope not, but it can be called high risk speculation.

As a reminder, recall I posted the What if question in the weekend report.  What if gold was in for a major decline?  Where bonds broke down and took gold with it?  Recall the measured move for this scenario shows gold just above $1,000 if this were to occur.  Well today we received a little clue that we need to pay attention at least to this scenario. The chart below shows a break of two patterns for gold and bonds.  I am just bringing it to your attention.

Plungers Big Trade-Update.

I hope my analysis of this trade was cogent enough for you to have seen it and you took a position.  Its been a barn burner right from the start.  Today I took a couple of chips off the table.  I sold my DWT.  I have retained my option spreads and short UWT positions which is the bulk of the trade, but I just felt its time to give some of it a rest.

Maybe it was the news that Dennis Gartman made a call to short oil.  That’s usually a pretty good contrary indicator.  If we get a bounce at some point I am going to ride through it with my existing positions as they decay in my favor with time.

Again, this has been a great trade with some of the option spreads delivering over 100% gains in just 2 weeks. DWT is a vehicle that trades with plenty of liquidity and narrow spreads and as of today we have booked a 59% gain in two weeks.  This is a great start, but I see much bigger gains ahead, but the trade has to be managed.  Selling my position in DWT is me managing my trade.

Here is the action coming off that original break of its channel back in early march.  Keep in mind we have caught this one going both ways capturing both legs down, the first one and the second after the back test.  I wasn’t agile enough to catch the run back up.

Here is a close-up of it coming out of that BT H&S.  It is getting a bit over extended.

So here is the bigger picture of the entire move.  The thesis is that we are going to retrace  this entire move or at least a major part of it for two reasons.  #1 we are still in a secular bear market in oil which started in 2008 and is not over and #2 we are entering a recession and demand will slacken among a sea of new production.  But, as I have said it doesn’t go in a straight line.  We have now cleanly broken the rising wedge and are now ripe for a BT.  It doesn’t have to happen, but I am hedging my bets that it will.  Again managing my trade.

Another reason, I am moving some minor chips to safety is today we transited well outside the BB.  Plungers rule is not to expect an index to to stay outside of the BB for more than 2 days.

One last look at oil.  There can be little doubt what is now occurring, but can we expect a back test?

Let’s move on to Commodities.

I have been harping on this so much lately, because I believe it is sending a signal to all of us loud and clear and we better be listening. First off copper is now out of the whispering stage.  It’s talking loudly.  If it breaks the 200 EMA I would consider it in the shouting stage.

And the CRB.  There can be no doubt now this sector is in big trouble.

And of course the uber big picture:  Knights go sit in a dark room and ponder what this chart is saying to us.  Consider the word credit contraction

All the above charts I have shown are very distressful.  For Big Bears like me they have been a big cash register. But, I sense I may be near the end of my run for now. Take a look at the GSR.  We got a downside reversal outside to inside the BB.  That tells me panic among the commodity space might need a bit of a rest.  Maybe it takes shape in the form of just a BT to those neck lines.  That’s why I hedged and took on some of my favorite PM longs.

Daily GSR:(Gold Silver Ratio)  When Gold is stronger than Silver it indicates a Credit Contraction

The weekly:

Just for fun here are some of the favorite in my stable bought today, I am not falling in love here and they will be on a tight leash: