A big impulse move that we are currently experiencing right now in the PM complex is separated by several small consolidation patterns that make up the entire impulse leg. Its these small consolidation patterns that give life to a big impulse move because without these little rest stops along the way the impulse move would burn itself out. One should welcome and anticipate these small consolidation patterns as they will help you understand where you maybe within the impulse move. I’ve seen as few as one and as many as four buildout during a strong impulse move.
Below is a daily chart for the first two impulse moves that formed at the beginning of the HUI’s bull market run that started in 2000. The very first impulse move formed 3 small consolidation patterns, two triangles and one H&S consolation pattern which led to the first top in May of 2001. At that point it was time for the HUI to consolidate its gains and begin to buildout the much larger black triangle. After the completion of the black triangle it was time for the second major impulse move up in the HUI’s still new bull market. As you can see the second major leg up formed three more consolidation patterns before exhausting itself. The second impulse move almost doubled the first one as the new bull market was gaining strength.
This next chart starts where the chart above left off at the beginning of the second large black triangle consolidation pattern labeled #2. The second big consolidation pattern took close to 15 months to compete. That impulse leg formed two consolidation patterns before it was finished in December of 2003 that started the third big triangle consolidation pattern.
The next major triangle consolidation pattern in the HUI’s bull market begins where the chart above left off at #3. The third big consolidation pattern took close to two years to complete before the next impulse move would begin. Think about that for a minute. Will you be able to hang on to your PM stocks for two years with no appreciable gains? It’s easy to say that now but when our current impulse move is finished and the next consolidation pattern begins to buildout will you have the fortitude to hang on the chop-o- matic of a trading range? Knowing what to expect can make it easier but it will still be tough. Anyway the fourth impulse leg formed the two small red consolation pattern before it was completed.
This next chart for the HUI shows its entire history going all the back back to the beginning in 1996. This chart also shows all the consolation and reversal patterns along with all impulse moves that start at the 4th reversal point in each consolidation pattern or the right shoulder high of the H&S reversal patterns. The red numbers label each triangle consolation pattern we just looked at on the charts above so you can see how each one fits into the bull market that began in 2000. Keep in mind when you look at all the Chartology on the chart below that a stock does only one of three things. A stock can buildout a consolidation pattern, reversal pattern or is in an impulse move. Knowing these three simple things can help you understand where you maybe at any give moment in a bull market.
A good example is our current situation. After the strong impulse move out of the 2016 low to the August 2016 high it was time for the price action to consolidate that move. There was no way to know at that time how long it would take or how big the consolidation pattern would be. As it turned out it took just over two years to complete the 2016 bullish falling wedge. Since the breakout and backtest were complete we are now in the second month of the new impulse move. At this point a rough approximation would be that the current impulse leg should at a minimum takeout the 2016 high with the 2011 H&S top neckline being a good place to look for some strong resistance that’s about double from today’s close.
Those impulse moves above are typical of any strong impulse move in any stock or market. It’s just how markets work. After the 2016 bullish falling wedge completed its work we now know we are in an impulse move and the move up should be very strong until its exhausted, rinse and repeat. Have a great weekend and all the best…Rambus