Below is a two year daily chart for the HUI which I first showed you when the HUI broke above the double bottom hump to start its bull market. I call this chart the reverse symmetry chart as shown by the red arrows. How a stock comes down, especially in a strong move, will reverse symmetry back up over the same area. It’s more of an art than a science. You can see the rally off of the mid January low found a little resistance at 182 before it broke through. Now it’s testing the next overhead resistance line at the 208 area and has been finding some resistance which we should initial expect. Today is the fourth time that the HUI has tested the 208 area from below. A breakout above the 208 area will put the next area of resistance on the map at 250 or so which would happen fairly quickly as the decline back in 2014 was pretty steep. If the HUI fails to breakout right here at 208 then support will show up at the previous high at 182 or so.
In mid January of this year it looked as if another leg down was in store for the precious metals complex. Most of the precious metals stock indexes broke down to a new bear market low which I was expecting, as I was looking for that one last capitulation move to shake out the last of the bulls. There was a pretty symmetrical H&S consolidation pattern that had developed at the lows going back to August of last year. The setup looked perfect for one last move down to end the bear market but that didn’t happen. Instead we got a two day shakeout below the previous low which ended exactly three months ago today.
I have been one of the biggest bears since the HUI put in its right shoulder high in 2012 which was the beginning of the bear market.The actual high was made in 2011 but the first real strong impulse move down started from the right shoulder high. Three and a half years or so was a long time to be bearish on this once thriving sector but when I seen the failed breakout to the downside in January of this year that caught my attention. There is an old expression in the markets that says if you see a false breakout from a well defined pattern, the chances are very good that it was a failed breakout and the price action will move rapidly in the opposite direction, leaving everyone who was on the wrong side of the trade in the DUST.
This is exactly what happened in the precious metals sector. After just two days below the neckline on the HUI for instance, the move back up has been breathtaking to say the least. Both the bulls and the bears were confused as to what just happened. How could sentiment change so quickly from the bottom falling out, to a rip roaring bull market just like that. That’s how many moves end. The bear market was so long and brutal that everyone who wanted to sell finally had their chance. With no sellers left the bulls took charge and a brand new impulse move up began.
We’re now at a critical point where both the bulls and the bears don’t know what to do. The bears keep hoping that they were right and the bear market isn’t really over yet and new lows will be on the horizon. The bulls on the other hand are waiting for a good correction in which to buy their favorite PM stocks in this new bull market but the precious metals stocks just keep going higher without any significant declines. Damned if you do and damned if you don’t.
Lets look at some charts so I can show you what I was looking at in regards to such a major shift in sentiment. These first charts will be what I call a ratio combo chart. The top chart will have a ratio which compares one item to the other, which shows how it’s doing compared to the item on the bottom chart. It’s a little bit like inner market analysis, but is easy to see and understand. How a ratio chart develops can have huge consequences for the underling stock or market.
This first ratio combo chart compares gold to the XAU on top with the XAU on the bottom. The ratio chart on top tells the story of how undervalued the XAU index is to the price of gold. It’s mind blowing when you understand how beaten up the precious metals stocks have been vs gold. For many years the blue horizontal line at 5.10 or so was a good place to buy your favorite precious metals stocks, and when the ratio dipped down to the red horizontal line around the 3.70 area it was time to exit those favorite PM stocks.
Looking back to the 1996 time frame you can see the ratio chart on top put in its all time low at 2.60 while the XAU was putting in another important high up to that point in history. From that important low in 1996 the ratio chart on top embarked on a twenty year parabolic rise in which gold would outperform the XAU, even with the bull market the XAU had in the 2000’s.
The first real sign that the XAU or the precious metals stocks were in trouble with gold was during the famous 2008 crash which spiked the ratio up to new all time highs. At the time it looked like it might just be an aberration and the ratio would fall back into its normal trading range between 3.70 and 5.10. If you look at point #4 on the parabolic arc the old ceiling now became support for the ratio meaning gold was outperforming the XAU. There is no way anyone could have predicted how far out of wack this ratio would become. The parabolic arc just kept getting steeper and steeper until it finally put in a double top reversal pattern in January of this year. That was my cue to reverse from a staunch bear to now a staunch bull on the precious metals stocks.
Many times when a parabolic trend ends either up or down the move in the opposite direction can be quicker than the actual parabolic move itself. So far the move down from that double top on the ratio chart has been vertical in nature. Now take a look at the XAU monthly chart on the bottom. As the ratio has been moving down the XAU has been in a strong rally since the middle of January of this year. The XAU broke out from the five point blue bullish falling wedge reversal pattern while the ratio chart on top has broken below the parabolic arc. What this combo chart strongly suggests to me is that it’s now time for the precious metals stocks to outperform gold and in a big way, a revision back to the means.
Below is another ratio combo chart which did an excellent job of calling the low for the bear market in the PM complex. This chart has the TLT:GLD ratio chart on top and GLD on the bottom. On the left hand side of the charts you can see how the ratio chart topped out during the crash in 2008 while GLD bottomed out with each forming a H&S pattern. Then when GLD topped out in 2011 the ratio chart bottomed out calling for a bear market in GLD. Now fast forward to January of this year 2016. Up until January of this year, the blue rising wedge could have broken out in either direction which I was leaning toward an upside breakout as that would have signaled the capitulation move for the PM sector. After the seventh reversal point in the blue rising wedge the ratio broke to the downside signaling the bear market was over. Instead of being a consolidation pattern the blue seven point rising wedge ended up being a reversal pattern. Mid January of 2016 comes into play again as an important low for the PM complex.
This next ratio combo chart compares the US dollar to the Japaneses Yen on top and Gold on the bottom. Normally when the US dollar is outperforming the Yen gold declines in general. Note where the two blue arrows meet in 2011. They meet at gold’s 2011 bull market peak and the ratios bottom. The ratio chart built out a double inverse H&S bottom while gold built out a rectangle consolidation pattern. From the 2011 high for gold, and the bottom for the ratio they both moved in the opposite direction. The ratio chart on top and gold on the bottom actually made their reversal high in November of last year but they both broke out of their reversal patterns in January of this year. Again January 2016 comes into play You can see the ratio built out a blue five point bearish rising flag reversal pattern while gold built out a very large seven point falling wedge.
There is one more important point to make on the ratio chart which will most likely affect gold as well. Note the near vertical move up the ratio made when it broke out of above neckline #2. It was a vertical move which didn’t have time to form any consolidation patterns along the way. Many times when you see a near vertical move like this the decline will be just as strong because there were no consolidation patterns built on the way up to offer any support on the way down. I call this Reverse Symmetry as shown by the red arrows. As you can see the decline out of the blue 5 point bearish rising flag has been just as steep as the rally leading up into the bearish rising flag, reverse symmetry. The first area of real support for the ratio chart will be .83 which is the neckline extension rail taken from neckline #2 which many times will hold initial support.
What is interesting about these three ratio combo charts is that they are all suggesting a strong move up for the precious metals complex that maybe larger and quicker than move folks can believe. We won’t know 100% until we can look back in hindsight and see what actually took place, but so far the beginning of the rally, especially the precious metals stocks, has been very strong since the mid January low. If you’re a bull where do you get on and if you’re a bear where do you get off? Questions I’m sure are being asked right now from many of the precious metals complex investors.
Lets look at one last ratio combo chart which has the TIP:TLT ratio chart on top with the CRB and the GDX indexes on the bottom. When the ratio chart in black is rising there is some general inflation and when it’s falling we generally see deflation. It’s not a perfect tool but it shows us a general picture of what is actually taking place. As you can see the ratio chart in black topped out in 2011 along with most commodities and the precious metals complex. We’ve been in a general state of deflation since the 2011 ratio high and still are to this day. What would get my attention that maybe some inflation may be coming into the markets would be if I seen the ratio in black starting to rise above the downtrend arrow with the TLT itself declining below its uptrend arrow. At this point there is nothing to get excited about on the inflation front unless the ratio chart builds out a possible double bottom in this area, and the TLT builds out a possible double top.
Now lets look at the CRB index and the GDX precious metals stock index at the bottom of the chart. The CRB index has barely budged off of its bottom but it has formed a higher high and has broken above its two year downtrend arrow with the 30 week ema just above the current price.
The GDX is showing a much stronger bottom in place as it has broken above its double bottom trendline at 16.90, the top rail of its five year downtrend line, and is trading well above its 30 week ema. This tells us the precious metals stocks are leading the rest of the commodities complex higher at least to this point in time. There is one more bit of interesting chart action on the GDX at the very bottom. If you look to the left hand side of the chart you can see that massive H&S top that formed back in 2011 on this linear scale chart. You only get one guess on the price objective for that massive H&S top. The measured move for that H&S top is down to 12.26 which is almost dead on the money of the actual low. Just take your fib tool and measure down from the top of the head to the neckline and then move your fib tool down to the neckline and see what you get.
This next combo chart shows how gold is performing in some of the more important currencies of the world. The two resource based currencies the Canadian Dollar and the Australian Dollar show a big triangle consolidation pattern that has broken out and and is being backtested presently. Note how the Australian Dollar is the closest to making new all time highs vs the other currencies vs gold while the US dollar is the furthest away from making a new all time high.
This last chart for tonight I call the Precious Metals Combo 10 chart. This combo chart has all of the most important precious metals stock indexes along with gold and silver. I use this chart to see what PM indexes are performing the best so far in this new bull market. The red arrows shows the 2014 consolidation patterns lows and the black arrows shows the 2014 consolidation patterns highs.The blue shaded vertical area shows the January 2016 lows. When you scroll down through all these charts you can see which ones are leading the pack using the red arrows for a reference point. Up until today the XGD.TO, big cap PM miners, was the first PM index to reach the top of the 2014 consolidation pattern as shown by the black arrow. Today though shows the GLDX, junior gold explores, making up ground fast as it too closed at the top of the 2014 consolidation pattern. Note the move of the small cap junior silver miners which is the last chart on the bottom. The SILJ still has a ways to go yet to reach the black arrow, but they’re putting on a show for all those folks that care to take a look. Silver is still the weakest but it’s trying to make a move up. Even the old $CDNX small cap Canadian index has finally joined the party and is getting a decent move to the upside.
The other different shaded vertical areas shows what I consider to be important lows. It just so happens that the lows are roughly four years apart, as shown by the black rectangles on the HUI chart. They’re not exact by any measure, but they do show up at interesting junctures on these indexes.
Back in 2008 when the PM sector finally bottomed it was an important low as that’s where the buyers stepped up to the plate. In 2015 most of the PM stock indexes broke below that very important bottom which made one stand up and take notice. And then in January of 2016 a rally started, which would take those PM indexes back above that important 2008 crash low. That was a very big deal for me, which suggests we seen a bear trap which few got out alive. Now just three months later many of the PM stock indexes are trading back up to their 2014 consolidation pattern highs, which is a multi year high in some cases. There are no guarantees when it comes to trading the market, only probabilities which we need to get on our side in order to be successful. All the best…Rambus
This silver juniors etf is also having a good day. What you see on this chart is a classic impulse move with one pattern forming on top of the next. In a strong impulse move you can see up to three and sometimes four small consolidation patterns form before a bigger correction takes place which can be pretty lengthy at times.
The monthly candlestick chart shows the entire history for this etf. There are still two weeks left to trade this month and it would be nice to see a nice big white candlestick form.
Below is a daily chart for the HUI which shows one of the original patterns that formed the, what turned out to be a Diamond reversal pattern to the upside. There are at least several more reversal patterns that formed at this most important low. As you can see the Diamond had seven reversal point making it a reversal pattern to the upside. The breakout was accompanied by a gap and then a backtest to the top rail. Everything looked good to go at that point then after just four days of rallying the HUI quickly reversed direction and traded below the apex of the blue triangle which is not what I wanted to see as that usually is a bearish setup in this case. After trading just four days below the apex the price action reversed hard again to the upside negating the end around the apex move. That was a shakeout before the breakout or bear trap. Again as we’ve discussed in the past when you get a false breakout in one direction you’ll generally see a big move in the opposite direction. That false breakout of the blue Diamond was the bears last hope to push the HUI lower but they quickly ran out of gas and the bulls then took control which initiating the short covering rally.
Since the initial high during the first week of March the HUI has been consolidating that first impulse move up forming a bullish expanding rising wedge which broke out this morning with a breakout gap.
This second daily chart for the HUI shows a clean five point expanding triangle reversal pattern. The breakout was a little sloppy but the backtest held nicely on the last touch. It’s always nice to see some type of consolidation pattern form on top of an important trendline which is generally a bullish setup in this case. The moving averages had a nice cross back in February with the 20 and 50 day ema’s crossing above the 200 day simple moving average.
This next chart is a weekly combo chart which has the HUI on top, gld in the middle and slv on the bottom. We’ve been following this chart for a very long time which shows the massive 3 1/2 year consolidation patterns that each one has formed. Both GLD and SLV broke above their top rails several months ago already while the HUI is just now breaking out above its massive seven point bullish downtrend channel. It’s charts like this one that helps us confirm the bull market is still alive and well. If we see the price action become very weak and start trading below the top rails of their respective 3 1/2 year trading ranges then we’ll know there is trouble but as long as the price action keeps confirming the bull market it is what it is.
Below is a weekly chart which shows the massive H&S top and the bear market that ensued once the neckline was broken to the downside back in 2013. At the bottom of the chart you can see the blue 5 point expanding triangle that formed which was the reversal pattern to end the bear market for the HUI. I put a red circle around the breakout and backtesting process of both the expanding triangle and the top rail of the downtrend channel. It’s very subtle but you can see the price action broke above the top rail of the downtrend channel first and then backtested it. The HUI then rallied above the top rail of the expanding triangle and then backtested it before moving higher. They’re inconsequential to most folks but for me these little clues all add up to paint a picture that one can make a game plan to follow and as long as the game plan is working stick with it and don’t try to out smart yourself by looking at every trendline thinking it’s the most important line on the chart. In a bull market the surprise will be to the upside as today’s price action is showing.
This next weekly chart for the HUI shows a good example of how this bull is unfolding from a Chartology perspective by doing all the right things. This is the ping pong chart we’ve been following which shows the expanding triangle forming on the bottom rail of the 3 1/2 downtrend channel. The breakout above the blue expanding triangle also coincided with a breakout above the 2008 crash low which was a very important low which had been violated to the downside last summer. Trading back above that crash low was a big deal. It’s interesting that this morning the HUI had a gap opening which is right at the top rail of the 3 1/2 year downtrend channel. It won’t surprise me in the least if we see a backtest ot the top rail of the downtrend channel before it’s all said and done which would add more confirmation especially if it holds support. There are no rules tho that say we have to see a backtest either.
This last chart for the HUI is a weekly line chart that shows there have only been two weeks since the January 2016 low was put in place, where the HUI fell. This kind of price action makes it hard for the bulls to take a position if they missed the bottom and it makes it hard for the bears who are looking for some weakness to reduce their short positions. Confounding both the bulls and bears alike is what makes this move so special. Everyone can’t get in at the bottom and everyone can’t get out at the top.
Below is the weekly chart we’ve been following very closely which shows the ping pong move taking place between the top rail of the three year expanding downtrend channel and the top rail of the blue expanding triangle. Today the HUI is breaking above the top rail of the expanding downtrend channel offering another clue that the bull market is alive and well. Simple charts like this can add a mountain of evidence to the big picture analysis which is what we want to see for more confirmation. As long as we keep getting confirmation from different areas of Chartology and inter market studies we looked at in the Wednesday Report you only have to fear is fear itself.
I know there are a lot of folks that are frozen in the headlights right now not knowing what to do. It’s never easy to switch ones opinion that may have been in place for literally years. The Chartology is strongly suggesting that a change is taking place right here and now not because of what some analysis is saying but it’s what the charts are saying that matters the most. Everything is locked up in the price action from fundamentals, Elliot Waves, cycles you name it and it’s on the chart. It’s the discipline of what technique you use to unlock what the charts are saying. I just so happen to like Chartology but the other disciplines work well for those folks that understand how they work. Keep an open mind to any eventuality and use whatever discipline suits you as an investor.
As the consolidation phase continues to build out from this first impulse move up in the precious metals sector lets review some of the charts we’ve looked at previously that suggested the bear market might be over. Most of these charts will be ratio charts which compare different sectors to one another These rather complex charts can give us some hidden clues that an important reversal may have taken place.
The consolidation process takes its toll on both the bulls and the bears alike. As you know there are never any guarantees of anything when it comes to the markets so it’s always important to try and get the big picture right to get the odds in your favor.
Lets start with one of the more important combo ratio charts we’ve been following which has the TLT:GLD ratio on top and GLD on the bottom. When the ratio chart on top is falling ( Gold is Outperforming Bonds ), GLD is generally rising and vice versa. On the left side of the chart you can see the ratio chart topped out in 2008 while GLD bottomed with both forming H&S patterns. Next in 2011 the ratio chart bottomed out while GLD topped out and started its bear market. Now looking to the right hand side of the chart you can see where the ratio chart on top , topped out on January 16th of this year while GLD on the bottom also put in its bear market low. The ratio chart on top has been rising over the last three weeks while gld has been consolidating, which is to be expected as no market goes straight up or down. So far there is nothing concerning with this combo ratio chart except for a mild correction. As long as the ratio chart trades below the top black dashed horizontal rail the new bull market lives on.
Below is another very important combo ratio chart we’ve been following which shows the GOLD:XAU ratio chart on top and the XAU ( large cap Gold Stocks) on the bottom. This combo chart does a very good job of showing just how undervalued the XAU is to the price of gold. Back in 1996 the ratio chart on top bottomed out at 2.60 while the XAU on the bottom topped at 155, which wasn’t to far out of wack. The parabolic arc shows from that low in 1996, even with the bull market years from 2000 to 2011 gold continued to beat up on the XAU until just recently when the ratio chart on top put in that small double top at 24.33 yellow shaded area. To say the XAU is under valued to the price of gold is an understatement. Think about this for a moment. It has to be one of the most amazing bear markets in history . The price of large cap Gold Miners has been falling relative to Gold for 20 years , even during the most incredible bull market the yellow metal has ever seen ! Ask any Gold Enthusiast and they will tell you , Gold stocks have been a brutal investment choice .
The ratio chart on top is a monthly line chart so we won’t know until the end of April if the crack below the parabolic arc is truly broken to the downside. Note how the XAU on the bottom chart bottomed out at the same time the ratio chart was putting that double top. The XAU is now in its third month of a breakout move out of the seven point bullish falling wedge reversal pattern. There is nothing broken on this chart and still looks positive for the XAU outperforming gold.
This next chart is a weekly bar chart for the GLD:XAU ratio on top and the XAU chart on the bottom which gives us a close up view of the price action. Note the GLD:XAU ratio chart on top shows a failed breakout above the top rail of the blue triangle which shows up as a double top on the monthly line chart. The bearish setup here is when the price action gaped below the apex of the blue triangle which is never a good sign if one is bullish. Also we’ve discussed many times in the past that when you see a false breakout in one direction you tend to see a big move in the opposite direction, which we have. The XAU chart on the bottom shows it has broken out of a seven point falling wedge reversal pattern. So far nothing is broken on this combo chart.
This next ratio combo chart shows the very important USD:XJY on top and gold on the bottom that we’ve been following very closely. You can see how they are generally inversely correlated, not always but in a general sense. You can see in 2011 when gold put in its bull market peak the ratio chart on top built out an inverse H&S bottom, blue arrows. From that 2011 low the ratio chart on top went on a tear to the upside while gold built out its bear market downtrend. For most of 2015 while gold was generally falling lower the ratio chart was building out a five point bearish rising flag. Before that five point blue bearish rising flag broke to the downside I thought it might breakout through the top side which would signal the capitulation move for the PM complex. Once it broke to the downside I wasn’t going to argue with what the chart had just said, that the five point rising flag was a reversal pattern to be respected. The other important aspect of the ratio chart on top is the possible setup for some reverse symmetry to the downside, as shown by the red arrows. We’ve been following the breakout from that five point bearish rising flag reversal pattern since day one, looking for a near vertical drop which so far has been taking place. The reason being is that there are no consolidation patterns to stem the decline which could offer some support. How the ratio chart went up is most likely how it will come back down.
This next chart is a combo chart which compares gold to many of the important currencies of the world. As you would expect the gold vs the US dollar would show the weakest chart as the US dollar had been so strong. Gold vs the Australian dollar has been the strongest of these currencies charts with the Canadian dollar being pretty strong as these are commodity based currencies. They all have formed blue consolidation patterns with Gold in Euro, Canadian Dollar, and the Australian Dollar all breaking out above the respective top rails.
This next combo chart shows the GDX on top and the $BPGDM on the bottom. I like to use the $BPGDM chart on the bottom to look for a divergence with the GDX chart on top. After the initial move up in January of this year there was a divergence where the $BPGDM had a much higher low vs the GDX. The $BPGDM just recently went on another buy signal when the price went above the above the 5 day moving average and the 5 day moving average traded above the 8 day moving average which are now properly aligned to the upside.
Lets look at one last chart which shows the most important moving averages for gold on the long term daily chart. It wasn’t very long ago and the price of gold was trading below all four moving averages. I said at that time that gold would have to show its hand if it started to trade above any of the moving averages. There is no getting around that fact. As you can see gold is now trading above all four of the moving averages which have all started to turn up. At some point I expect to see them all properly aligned in a similar fashion to the left side of the chart. When they all get aligned properly, in a bull market or bear market, they show you the major trend and which direction one should be trading.
Without actually analyzing the PM complex in isolation, the inter market relationship with the different sectors we looked at on the charts above paint a picture of a reversal of the bear market that has been in place for 4 1/2 years. As long as the relationships keep playing out as they have since the beginning of this year I have to remain a bull until proven otherwise. It won’t be easy but with a game plan in place to follow it makes taking a position and holding on to it during the inevitable pull backs less challenging. All the best…Rambus
Below is a weekly chart for the $SOX which is under going an important breakout and backtest of the one year blue triangle consolidation pattern. Reversal points #2 and #4 were both double bottoms for the blue triangle which formed on the 13 year S&R line at 545. The next area of overhead resistance will come in at the previous high at 690 or so.
The monthly chart shows why the 545 support and resistance line is so important to the big picture. It extends back in time 13 years or so when the blue 5 point flat top triangle reversal pattern formed and broke to the downside. The support and resistance line then reversed its role to support once the SOX broke back above it in 2014. There is also some nice Chartology on this long term monthly chart as shown by the 10 year bullish falling wedge. Note the little red bull flag that formed just below the top rail right before the breakout and then the blue triangle that built out as the backtest. This sector has lagged some of the other areas within the technology sector but it may play catch up going forward as long as the S&R line at 545 continues to hold support.
Today I would like to show you some more charts on some if the different stock market indices we looked at in the last Weekend Report. Last weekend we looked at alot of the bull market uptrend channels that are still in place since the 2009 crash low. It’s always important to keep an open mind no matter how strongly we believe things to be when it comes to the stock markets. Everyone can’t get in at the bottom and everyone can’t get out at the top and then there is the consolidation phase that trips up both the bull and the bears alike.
Lets start with a daily chart for the INDU which I’m showing a large trading range that began during last August’s big decline labeled with the red #1. The INDU then rallied back up to the 17,950 area, red #2, and started to form that seven point bearish falling flag which I thought was going to be a bull flag until the price action broke below the bottom rail which led the the second low in January and February of this year which formed a double bottom, red #3. The INDU has rallied strongly again and is within 435 points of reaching the top of the trading range again. Just for argument sake, if the INDU reaches the top of the trading range it will have completed the third reversal point at 17,950 which would be an odd number of reversal points creating a possible big double bottom. Keep in mind this is only one scenario at this time and there is a lot of work to do before we can even begin to call the price action a double bottom.
Below is basically the same chart as the one above which has the moving averages on it. This past week the 20 day ema crossed back above the 200 day simple ma with the 50 day ema now rising strongly. During big trading ranges like this it’s not uncommon to see them cross back and forth before either the bulls or the bears setup the next impulse move out of the trading range. Once that happens they will get a nice alignment to them that will show the impulse move.
This next chart is a weekly look at the INDU which shows an even bigger trading range going back over two years. It’s not the cleanest trading range I’ve ever seen but the brown shaded support and resistance zones, as large as they are, have held on multiple test. As strongly as the bears have tried they have not been able to move the INDU below the bottom of the support zone on numerous occasions starting way back in 2014. No matter how bearish things become, when the price action is trading down in the support zone the bulls manage to find a way to rally the INDU higher. The same thing is happening at the top of the big trading range at the resistance zone. One slight advantage the bears have right now is they have created a lower high at reversal point #3 which maybe deceptive as I’ll show you in a minute.
I know many don’t see this next daily chart for the INDU as a possible outcome but regardless of what I may think or anyone else for that matter a setup is taking shape that could blow the roof off the INDU. Last week the INDU tested the top rail of a possible triangle consolidation pattern and backed off a bit telling us it’s hot and to be respected at this point in time. This is a critical inflection point for both the bulls and the bears. The bears need to reverse the price action and create another leg down and complete the 5th reversal point which would make this a triangle reversal pattern to the downside. On the other hand if the bulls are in control they should be able to move the INDU above the top rail creating a triangle consolidation pattern to the upside. Again this scenario is still on the table with no confirmation in either direction yet but it gives us a road map we can follow which is better than no road map at all. This big trading range is going to be one of two things a consolidation pattern or a reversal pattern.
I would like to show you how this possible triangle consolidation pattern fits into the big picture of the bull market that began at the March 2009 crash low. As you can see from this longer term perspective the blue triangle pattern is showing an indecisive trading range with a lower high and a higher low. Until we see some type of reversal pattern form the bull market remains intact. Maybe the 5th reversal point will hold and the triangle will end up being the reversal pattern. But, and there is always a but, since the INDU is in a bull market until proven otherwise the odds favor a breakout to the upside. It’s also possible that the INDU declines from this point but finds support on the bottom rail of the blue triangle forming a sixth reversal point similar to the bullish rising wedge which formed between 2011 and 2012.
One thing I’ll be watching very closely over the next several weeks will be to see how the price action interacts with the top rail of the blue triangle. The perfect breakout scenario would be to see the price action hit the top rail and have a mild decline. Then if the bulls are truly in charge the next rally attempt would take out the top rail on heavy volume. Then for confirmation I would like to see a backtest of the top rail from above.
The 20 year monthly chart for the INDU does a good job of showing you the bull market that began in March of 2009. Until we see a reversal pattern form of some kind it is what it is until proven otherwise.
I promised myself I wouldn’t post this next long term monthly chart for the INDU as it has been frustrating watching the breakout and backtesting process over the last several years when I first posted the bullish possibility. As long term members know I call this very large pattern on the INDU, THE JAWS OF LIFE, which is the opposite of how most analysis see it. Most call it the JAWS OF DEATH. You can see the blue triangle that is basically forming on the top rail which is generally a bullish development. This is about as clear a picture you’ll see anywhere on the long term perspective for the INDU.
This last chart for today is the exact same chart as the one above but this time I’m showing it as a line chart. I really do know how bearish most folks are on the stock markets right now but when I look at this long term chart for the INDU I can’t make a bearish scenario at this very moment. If anything it looks super bullish especially if the blue triangle gets broken to the upside. This isn’t my opinion it’s what the charts are strongly suggesting.
It’s time to go out and hide some Easter eggs for the Grand kids. Bottom line, keep an open mind to any eventuality that may arise. All the best…Rambus
Today felt like a short covering rally during the bear market years in the PM complex only in reverse. Days like today can make one think that the rally over the last two months is all she wrote for the new bull market.. Did the baby bull die at birth ? Maybe , but I’ll need to see more proof that the bear market for the precious metals stocks, that ended on January 19th of this year is back.
During a bull market it’s nice to see new highs being made even if it’s for the short to intermediate term time frame. Then to confirm a new uptrend we need to see higher highs and higher lows being made. Since the January 19th low we’ve seen the PM stock indexes making higher highs but we’ve not seen a higher low put in yet because the rally has been so strong. Tonight I would like to show you the new bull market for the GLDX, global explores, using horizontal support and resistance lines. You can apply the same principal to the other precious metals stock indexes like the HUI or the GDX.
During the bear market years it was very rare to see a higher high made on any of the precious metals stock indexes. I believe during the 4 1/2 year bear market there were just a couple occasions when we saw a slightly higher high made before the bears took over and moved the price action lower. That hasn’t been the case since the January 19th low.
Lets start by looking at a daily eight month chart for the GLDX and then work our way back in time to see how the bear market unfolded and how the potential new bull market may unfold over time using just the horizontal support and resistance lines. On this daily chart you can see the two month rally off of the January 19th low that only had a one or two day decline before the bulls took over and rallied the GLDX higher. Finally during the end of February of this year the GLDX has begun to consolidate that first rally phase chopping out a sideways trading range that is still in progress. Note the bullish crossovers of the 20 day ema, 50 day ema that have crossed above the 200 day simple moving average. Now note the two previous highs labeled #1 and #2 which the GLDX took out with no problem at all. Note how the GLDX gapped above both S&R lines and then backtested them from above before the price action moved higher. It’s subtle but it shows resistance reversing its role and turning into support. There is no doubt that this index is overbought but that’s why consolidation patterns form, to relieve the overbought condition. This eight week rally has taken out two previous highs which is bullish.
Looking at the 14 month daily chart for the GLDX it shows the price action taking out a third high that was made during the bear market. It could barely make a higher high during the bear market years, but now in less than two months it has taken out three previous highs without any hesitation whatsoever. This is a change in character that hasn’t been seen in over four and a half years which needs to be recognized at a minimum. The new trading range that is forming between 21.00 and 24.50 is healthy and should be expected. Nothing goes straight up without correcting from time to time.
This next chart goes back 18 months and shows a fourth high was taken out with this first impulse move up in the GLDX. After breaking above the fourth high by a little over a point, exhaustion finally set in and the current consolidation phase is taking shape.
This next chart shows 30 months of price action which is now starting to put our first impulse move up in perspective. The middle of our current trading range is forming on the fourth support and resistance line. Once our current trading range finishes building out a move up to the fifth high should be in order. If we’re truly in a bull market the GLDX will have to make higher highs and higher lows along the way.
This last chart for the GLDX shows the entire bear market starting at the head in 2011 all the way down to the recent low in January of this year. The brown shaded support and resistance zone, red fives, is where I think we may see a lengthy consolidation pattern build out which will be much bigger than our current one. Once our current trading range ends it should be a fairly easy run up to the brown shaded S&R zone between 31.00 and 33.00 as there were no consolidation patterns that formed on the way down.Some call that area a thin zone I call it reverse symmetry as shown by the red arrows. Once the GLDX breaks above the brown shaded support and resistance zone with the red fives on it, the next price objective would be the old neckline at 47 that formed its massive H&S top which this chart only shows the head, right shoulder and neckline.
Below is a weekly chart for the HUI which shows a similar setup we just looked at in detail on the charts above. When I first labeled the bear market low as a double bottom I used the red arrows to show how the HUI might move up to the next S&R line at 185 or so. Well here we are with a consolidation pattern under construction. This is actually what we want to see happen at the beginning of a new bull market. If the HUI crashes through the previous high at 140 that is where I will have to reconsider the new bull market thesis until then I’m in the bull camp. All the best…Rambus