GDX Update…The First Consolidation Pattern

I’m going to use the GDX as a proxy for the rest of the PM stock indexes. I can now say with a fair amount of confidence that the first consolidation phase is taking place. Lets start with just a simple daily chart for the GDX which is showing a small unbalanced double top with the right high being higher than the left high. Five days ago the price action gapped below the double top trendline and last Friday the GDX backtested the double top trendline from below. The price objective for the unbalanced double top is down to the 24.50 area.

This is how the beginning phase of a consolidation pattern begins to build out. In fairly large consolidation patterns there is generally a small reversal pattern that forms at the reversal points within whatever consolidation pattern ends up building out. This small double top is likely to be the the start of the first reversal point down. The double top price objective down to the 24.50 area would be a minimum decline we should expect before the GDX finds support and begins the next rally back up to the top of the new trading range around the the 32 area. If a triangle is forming then the price action won’t make all the way back up to the top before the bears take over again.This would  be labeled as the start of reversal point #3. Then one more move back down to the bottom of the trading range where ever reversal point #2 is located where we should see the fourth reversal point begin to form.

GDX DAY 1

This next daily chart for the GDX is a longer term look which shows the previous small blue consolidation patterns that formed the first impulse move up. What we have to work with right now is the completed small double top and its price objective down to the 24.50 area. It’s possible the GDX could go lower than the double top price objective before the price action reverses back up. The 24.50 area would be the minimum price objective to start the second reversal point back up to the top of the new trading range. Also there is still no way to know what type of consolidation pattern may build out but whatever the pattern, it will have a minimum of four reversal points.

Also whatever consolidation pattern builds out will be much bigger than any of the smaller consolation patterns that formed during the first impulse move up. Something else to keep in mind if you’re feeling beaten down for not selling at the exact high. Once this consolidation pattern is finished building out it will most likely be a halfway pattern to the upside. A rally similar to the first impulse move up in time and price will take the GDX to the next level higher where we should see another consolidation pattern form.

GDX DAY 2 LONGER TERM

This next daily chart for the GDX shows the fib retracements. The double top and the 38% retrace of the first impulse move up would be around the 24.50 area. A 50% retrace would be down to the 22.00 area.

gdx fib

Below is a long term monthly chart for the HUI I posted recently which shows all the consolidation patterns that formed during the bull market years and how our possible consolidation pattern may look. Normally, but not always, the first reversal point down can produce the strongest move within a consolidation pattern. As the consolidation pattern builds out the swings can become less volatile as the bulls and the bears get tired of beating on each other and volume usually tappers off. Once we can establish the reversal point #2 low, there is a good chance that that low will mark the low of  the consolidation pattern especially in a bull market. Establishing the first two reversal points in a consolidation pattern can then open up the door for a couple of short term swing trades within the consolidation pattern which will still have to form the 3rd and 4th reversal points. If you plan on shorting within the consolidation zone don’t get greedy as the reversals back up are just as strong the reversals down.

HUI MANY CONSOLDAITON

HUI Update…

You may have noticed I haven’t posted many short term charts for the PM stock indexes. The reason being most folks tend to start freaking out if the market goes against them for a short period of time. Looking at the longer term charts is much more relaxing and keeps things in perspective.

With that said below is a 2 hour chart for the HUI that begins at the start of the bull market at the end of January of this year. Horizontal support and resistance zones are much more important than angled trendlines. The lower brown shaded S&R zone is taken from the triangle high and the first low after the breakout. There was a quick initial backtest to the top of the S&R zone in April which suggested the S&R zone was important. The S&R zone was tested one more time in May when the next leg up began.

We have a similar setup right now on the upper S&R zone which runs between 240 and 246. It was backtested once in June. At this point nothing is broken in regards to the bull market which began in January. The first sign of weakness would be if we see the present S&R zone fail to hold support. That would suggest a deeper correction in the new bull market is probably at hand.

HUI 2 HOUR

 

Late Friday Night Charts…Precious Metals Markets : Zoom Out

When looking at the short term minute charts things look very volatile in the precious metals complex but the further you look back in time the less volatile the price action becomes. If one is a day trader then the minute charts are the ones to focus in on but if you’re an intermediate term trader perspective is everything.

Looking at the five year weekly combo chart below the precious metals complex has been building out a beautiful uptrend since the January 2016 low. There is nothing on any of these three charts that suggests a top is in place and it’s time to sell.  The thin black dashed horizontal lines taken from the previous highs is our first line in the sand for support. Note the left side of the chart and how the thin black dashed horizontal lines held resistance when they were broken to the downside which is bear market action. What we have since January is bull market price action.

If one had tried to buy any of these three sectors during the impulse move down out of the 2012 top to the June 2013 low for a counter trend rally, they would have been crushed like a bug against the windshield of a car. Even if I gave you the exact low could you have reversed back to the short side in time to protect any of the small profits you may have made? Looking at the price action since the January 2016 low, how many traders do you think have won big shorting this new bull market?

The golden rule is, don’t buy a bear market and don’t short a bull market. There are always exceptions to the rule but for the little guy, that doesn’t understand how the markets work,  it’s like taking candy from a baby , for those that truly understand how the most difficult game on the planet works.

hui combo falling wedge

Below is the inverse H&S combo chart for the HUI, GLD and SLV. Think of the necklines as your line in the sand, above is bullish and below is bearish. Until they’re breached to the downside I have to remain a bull and everything else is noise. It doesn’t have to be complicated.  Have a great weekend and all the best…Rambus

hui h&s

 

USDU …An Important Perspective on the US Dollar

We started following this US dollar index about a year or so ago which has a more equal weighting of different currencies than the $USD. Even though I don’t post it much this Alternative US dollar index has some very interesting Chartology on it which may be giving us an important clue as to the intentions of the Dollar .

If you recall the Standard US dollar index ($USD) was testing a major inflection point in May around the 92 area earlier this year. It did finally bottom but left some unfinished business behind. This is the daily chart I was following at the time for the USDU which shows the H&S top in place and the decline that took the price action down to the low at the 25.50 area. From that low the USDU began a decent rally but couldn’t trade above the neckline extension line at reversal point #2 before the bears took charge again. The bulls were able to stop the decline at reversal point #3 and a laborious rally took the USDU back up to the top of the trading range where the neckline extension line came into play again along with the 200 day moving average.

Reversal point #4 started the next decline back down to the bottom rail of what we can now call a triangle that has four completed reversal points when the price action hit the bottom rail recently. The bulls were able to only put in a modest rally over next four days when the bears took charge again. As you can see, yesterday the bears were able to break the bottom rail of the blue triangle and today that was followed by a large gap down. When you’re following a well defined chart pattern and you see a gap over an important trendline that generally signals the pattern is finished building. It’s never 100% but generally that is a good sign.

aaa udu

As always it’s important to put the consolidation pattern in perspective to see how it fits into the bigger picture. The weekly chart below shows the potential of what might be happening. As you can see the blue triangle is breaking down this week which may very well be the right shoulder of a much bigger H&S reversal pattern with the big neckline #2 being part of a double H&S top.

The next thing we’ll be watching very closely is how the price action interacts with big neckline #2. There is a good possibility that we could see a ping pong move between NL# 2 and the bottom rail of the blue triangle consolidation pattern as shown by the black arrows. That’s what I would expect to happen but there is no way to know ahead of time. So now we can watch the price action and let it tell us what it wants to do by the way it trades between the neckline and the bottom rail of the blue triangle. If the bears are really in charge and the bulls are extremely weak then we could see a breakout gap below neckline #2. At least we have something concrete to work with now.

One last note on the weekly chart below. I’ve added two red arrows that shows how this index could reverse symmetry back down if this big H&S top plays out. How the price action went up is often how it comes back down over the same area when there was a strong move with small or no consolidation patterns that formed. Stay tuned. If this pattern plays out we could be witnessing a large trend reversal in the most important chart on the planet .

USDS

HUI Impulse Update…

Below is a monthly candlestick chart for the HUI which is made up of black and white candlesticks. When you see a string of black candlesticks all in a row you know you’re in a strong impulse move down and when you see a string of white candlesticks all in a row you know you’re in a strong impulse move up.

Note the four white candlesticks all in a row from the January low made this year. If you see a black candlestick that forms during a strong impulse move up, many times it will show up on the daily chart as some kind of consolidation pattern. The black candle formed right on top of the 2013 support and resistance line that had reversed its role from resistance to support on the backtest.

The higher this initial impulse move goes up before a good correction takes hold, will have a direct impact on the consolidation patterns and impulse moves that will follow down the road. This first impulse leg up is giving us previews of coming attractions. The higher and stronger the better.

candle

Wednesday Report…The Chartology of the Dow Jones Industrial Average ..A Case for Optimism

Lets start off by taking an indepth look at the INDU as a proxy for the other US stock markets. A year ago this month the INDU put in an important low which has held support. A very strong rally ensued which took the INDU up to the 17,975 area where it topped out and began another strong decline. This next decline ended in the same area as the August 2015 low and formed a double bottom which is a reversal pattern.

The next rally phase took out the previous high by 200 points up to 18,167 where the next decline began, but this time the bears could only push the price action down to the 17,330 area which looked like it might be an important low. Then came the infamous BREXIT vote which made a slightly lower low with the INDU closing that day below the 200 day moving average. If you recall markets from all over the world were tanking hard but that decline ended just as fast as it began.

This first daily chart is just a simple look at the price action I described above, with one trendline which I’m calling a support and resistance line, above is bullish and below is bearish. That simple S&R line could also be called a double bottom trendline, which would be a five month double bottom reversal pattern.

INDU DAY 1

Next lets put some Chartology on the daily chart to see what chart patterns are building out. First notice the brown shaded S&R zone at the top of the chart, which is the all time high. Looking to the upper left hand corner of the chart you can see the INDU broke out above the brown shaded S&R zone and backtested from above.

Next there are two double bottoms. There is the big five month double bottom and then there is the smaller double bottom which formed earlier this year. The double bottom that formed earlier this year formed a double head of a H&S bottom formation.

The left shoulder formed a seven point bearish falling flag reversal pattern while the right shoulder formed the blue bullish expanding falling wedge consolidation pattern. We can connect the highs for each pattern which gives us a neckline. A month ago the INDU broke out above the top rail of the blue expanding falling wedge and then took out the neckline and the brown shaded S&R zone. Last week we got a backtest to the neckline which held initial support and we got a pop. As you can see there were three important resistance lines that were all broken to the upside as shown by the BO symbol with one complete backtest. It’s possible we could see a second backtest which may form a small consolidation pattern on top of the neckline. So far nothing is broken.

INDU DAY 2

This next daily chart shows three separate price objectives based on the Chartology. First without using the neckline and just using the blue expanding falling wedge as a halfway pattern, the price objective would be to the 19,725 area as shown by the blue arrows, which is called the impulse method. The second price objective is called the breakout to breakout method, which measures the distance from the breakout point of the small double bottom to the first reversal point in the blue expanding falling wedge. The measurement is then added to the breakout point of the blue expanding falling wedge which gives us a price objective in the same general area as the impulse method, which is not that unusual.

The third price objective is based on the height of the H&S bottom which is up to the 20,875 area. I know at this point in time it seems impossible, but when we look at the longer term charts it doesn’t seem so far fetched.

INDU DAY 3 PO

This next chart is a five year weekly look at the INDU which puts the price action on the daily charts above in perspective. There is a bigger chart pattern which is a one year black triangle consolidation pattern. If it wasn’t for the BREXIT vote the backtest to the top rail of the black triangle would have been dead on the money. So again nothing is broken at this point as long as the neckline holds support if it gets backtested again. Most are looking at this one year trading range as a reversal area for the bull market that began in the spring of 2009. It may very well be, but to get things started to the downside the neckline will have to be broken first.

INDU WEEKLY 1

This next long term weekly chart for the INDU goes all the way back to the 2007 bull market high and the inverse H&S bottom that formed during the 2009 crash low, and the bull market that followed. From a Chartology perspective our current blue one year triangle looks more like a consolidation pattern than a reversal pattern. Time will tell.

INDU WEKLY 2

This next chart is a 20 year monthly chart which shows how the bull market that began in 2009 reversed symmetry back up until the price action traded above the old bull market high made in 2007. How many could have imagined during the 2009 crash that the INDU would be trading above 18,000 in 2015?

INDU MONTHLY 1

Below is another 20 year look at the INDU which shows the one year triangle forming on the top rail of the Jaws of Life consolidation pattern.

indu monthly bar jaws

The 40 year quarterly line chart shows a beautiful breakout and backtest to the top rail of 13 year bullish expanding Jaws of Life consolidation pattern.

indy quarterly line

I would like to leave you to ponder this last chart for tonight which is a 75 year quarterly chart for the INDU. Many who study and invest in the stock markets live in a negative world. All they can see is the world is a mess and we are about to go into a black hole at any time . This attitude seems especially prevalent amongst those most interested in the Gold Markets.

But  for those that can think outside of the box these charts are suggesting  the future looks bright. Technology is going to change our world in more ways than one could ever imagine. It’s never going to be a perfect world, but we’re living in the best of times regardless of all the naysayers IMHO.

All the best…Rambus

indu quaerly massive 1942

GLD Update…Doing Nothing is the Hardest Part

Below is a daily chart we’ve been following which shows the six point flat bottom expanding triangle consolidation pattern. The top rail may look a little sloppy but there is a reason for that. First, note the big breakout gap that was accompanied by a very large increase in volume and then the first backtest several days later. It’s always important to adjust your trendlines when you get new information in case there is another backtest or pull back later down the road. So the top rail reflects the backtest point which then defined the top rail. As you can see GLD started to rally which looked like the impulse move was beginning but it had one more backtest it needed to do to put doubt and fear into investors. As you can see the second backtest was just a tad sloppy but held nicely.

Everyone is talking about how overbought the PM complex is right now and it has to rest before it can go higher. What this six point bullish expanding flat bottom triangle is telling us that the correction has been taking place for six months already and the consolidation pattern is finished building out and the next impulse move higher is just beginning. More confirmation will be when GLD takes out the previous high made on the initial breakout. Take a second and look at this chart and try and understand what it really means for the PM sector. Remember we’re in a new bull market and each consolidation phase will have a bullish outcome. Doing nothing can be the hardest part of trading sometimes.

GLD NEW

HUI Update…PS

I forgot to add this monthly candlestick chart for the HUI to the post below which shows the 2013 S&R line and the string of white candlesticks that have formed since the bull market began in January of this year. The only candlestick that is black formed during the backtest to the 2013 S&R line. The neckline extension rail is where we may see some overhead resistance come into play. Note the big black candlestick that formed in 2013 when the HUI broke below the neckline of its massive H&S top. Reverse symmetry suggests the HUI may move up over that same area in a strong move to the neckline at 380 or so.

hui 2013

HUI & GLD Combo Chart…

Its been several weeks since we last looked at this combo chart which has the HUI on top and GLD on the bottom. I call this chart the 2013 S&R chart because all the price action below that very important S&R line started to build out after the big gap down in 2013 which many at the time called manipulation but from a Chartology perspective it was a perfect breakout. I’ve been showing the price action below the 2013 S&R line as a bullish falling wedge which is true but when you boil it all down the 2013 S&R line is the most important trendline on this chart, above bullish and below bearish.

The HUI and GLD both broke out above their respective 2013 S&R line at different times with GLD breaking out just ahead of the HUI. They both broke out above their 2013 S&R line with a breakout gap and both had a nice backtest also.

Since the PM complex is in a new bull market it was only a matter of time before each would breakout from their first consolidation pattern to the upside, which was the blue bullish rising wedge on the HUI and the blue expanding triangle on GLD. Again you can see a breakout gap above their respective top rails of their blue consolidations patterns. Once you know the big trend, bull or bear market, the consolidation patterns will breakout in the direction of the prevailing trend. That is an important concept to grasp. Many times a consolidation pattern can morph into a bigger consolidation pattern which will have the same out come as the smaller consolidation pattern. Eventually though the consolidation pattern will finish building out and the next impulse move will begin in the same direction as the previous move.

One last thing to recognize on this combo chart below. Note how much stronger the HUI is vs GLD if you go back to the 2013 gap area. The HUI is currently testing the bottom of the gap while GLD is still significantly below its 2013 gap area. This ties into the thesis I’ve been showing you on the ratio combo charts that are showing this time the PM stocks are finally going to have their day in the sun after 20 years of under performing gold.

HUI GLD COMBO

Below is a long term weekly chart which puts everything in perspective. First, you can see the big breakout below the bottom rail of the six point blue rectangle consolidation back in 2013 which many called manipulation at the time but it was a clear breakout from a very well defined six point rectangle consolidation pattern.

Then there is the three year seven point bullish falling wedge reversal pattern. It’s a reversal pattern because it has an odd number of reversal points.

Lastly you can see the little red expanding triangle that has been forming on the top rail of the bullish falling wedge which we know from past experience is usually a bullish setup. More confirmation will be given when gold makes a new higher high made just several weeks ago.

GLD RECTANGLE

 

Wednesday Report…A Potential Life Changing Market

The markets have a way to push you just beyond your limits to get you to do the wrong thing at the wrong time and then reverse on a dime. The bearish sentiment from just a casual observation over the last few weeks has felt like there was no way the bulls could rally the PM sector higher before there was a decent correction. In a new bull market the surprises come to the upside and not the downside.

The rally we’re currently experiencing in the PM complex right now and especially the Junior Miners is a potential once in a lifetime event for most investors. Sometimes we get lucky and experience several of these kind of bull markets over a lifetime, but generally your first experience is a learning experience if you can survive long enough to have learned something. I was lucky enough during the tech bubble in the 1990’s to have had just enough experience to play the last five years well enough to be able to retire at 50 years of age. Had I not had any experience before the tech bubble burst I would have most likely not gotten out at the top and rode the whole thing back down.

I didn’t become aware of the bull market in the PM sector until the spring of 2002. My whole focus up till then was the stock market. I still remember very clearly the first time I really looked at a chart for gold and seen a beautiful inverse H&S bottom. I didn’t even know what a junior gold stock was back then as the PM sector was so far off my radar screen. I began to study everything I could on this, way off the radar sector, knowing that the Chartology would be just as clear as the many different tech stocks I traded in the 1990’s.

It didn’t take me long to find some of the junior PM stocks with some really nice Chartology to start trading this new area for me. I felt like I had died an gone to heaven again as I thought nothing could ever beat the tech stocks.The chart patterns the PM stocks were making were just as beautiful as the many different tech stocks I traded.

So I got lucky twice in my investing career by finding two great bull markets in which to invest. Now we have entered the third great bull market of my lifetime which is the bull market that started in the precious complex in January of 2016. To be able to get in on the ground floor of a brand new bull market is only a dream for most investors but to get in at the bottom of the small cap junior PM stocks can change your life forever if you can trade accordingly, which is easier said than done as I know some of you are finding out.

It’s very easy to trade in hindsight when you look at a chart and see a top or bottom already in place but living day by day as a pattern builds out can be very challenging at times. It can take patience beyond what most have , to sit tight and let the pattern mature out , as sometimes they can morph just to throw you a curve ball. Knowing what the big trend you’re trading in, either a bull market or bear market, is the most important aspect of investing. Rule #1 is don’t short a bull market and rule #2 is rule #1. Let the bull market work for you. If you buy too early in a bull market you’ll be saved as the bull market progresses.

The first six months of our new bull market is now over and there is no way to get it back. Many have missed the bottom and have been waiting patiently for a pull back to get in . This strategy is not working. Many have tried to trade in and out of this new bull market and are left standing at the train station waving goodbye to the conductor as the train leaves. Personally I sold my positions a few months back and quickly realized this was a mistake and scrambled to buy them back at somewhat higher levels . This is how a new bull market works taking as few along for the ride as it can. At some point there is going to be a correction which will end up forming some type of consolidation pattern which will be needed to get the overbought condition back to normal. However predicting when and how this will occur will prove to be very challenging.

I have a ton of charts I could post tonight but I’m going to leave this Wednesday Report just the way it is. This is the first time since we opened up our doors at Rambus Chartology in which I didn’t post a chart , which is weird for me. What is most important to understand is this new bull market that is already six months old and isn’t waiting around for you to make up your mind if you want to participate or not. Only you can determine for yourself how you want to play this new bull market in the precious metals stocks. For some it will be a life changing event and for others it will be a should of or could of kind of bull market. Take what you’ve learned during the first 10 years of the PM bull market and the recently completed 5 years of PM bear market and use that experience to guide you through this next leg of the secular bull market. As always I will be right here analysing the Chartology of this most interesting and frustrating and exiting little market that we have all come to have a love / hate relationship with  , The Precious Metals Junior Miners .

All the best…Rambus