Wednesday Report…Gold Oil and Commodities …Back to the Future ?

Before we look at tonights charts I would like to take a minute to discuss trading the three X leveraged etf’s. Leveraged etf’s aren’t for everyone as they can be very volatile. These instruments are for those that can take a bigger risk and still come out OK when they go against you. For the average investor a 1 X leveraged etf is all they can handle and that should be fine. When you start playing with the 2 X and 3 X leveraged etf’s your risk factor goes up very fast.

Placing a sell/stop in the correct place works great for the 1 X leveraged etf, but when you are in a 3 X leveraged etf setting the sell/stop is a totally different game. Very rarely do I let the original sell/stop be hit before I will exit the trade as you have to give the stock some wiggle room when you first take a position. As more information becomes available you can start to make adjustments to your sell/stop mentally. A 3 X etf can get away from you in a heartbeat so one has to pay very close attention at all times.

With the 3 X Kamikaze stocks the leverage can be very high and can knock you out of a decent trade before it has time to start working in your favor. There is no worse feeling than waking up in the morning and seeing one of your Kamikaze stocks trading down15% or more before you can do anything about it. This is why we call them Kamikaze stocks.

Always keep in mind that leverage can cut both ways. During that two year bull run in the stock markets from 2016 to January of this year we had as many as 35 stocks at one time with many being 3 X leveraged positions. Once you can get ahead on your positions you can then move your sell/stop accordingly. As I’m more of an intermediate term trader I like to use the 30 week ema as my sell/stop as it usually gives the stock enough room to breathe. Again, leveraged stocks are not for everyone so please keep that in mind the next time you are deciding where or not to take on the leverage.

Tonight I would like to start out by looking at the HUI and show you why I decided to exit all my Kamikaze stocks today. The Kamikaze stocks are similar to options that decrease in value over time, but not to the extreme an option can lose value. It’s more of a slow decay in price, but after a fair amount of time you can begin to see the decay working against you which is why you try to time your purchases during an impulse move. Even then when a consolidation pattern starts to build out time is eroding your Kamikaze stock.

Below is one of the weekly charts we’ve been following which shows the parallel 2016 downtrend channel. In the center of the downtrend channel you can see the blue 7 point falling wedge reversal pattern. It’s a reversal pattern because it formed above the December 2016 low. The blue arrows measure the price objective which was down to the 119 area. The actual low came in at 131which was about 12 points higher than the price objective which could be close enough to call it done. Also you can see the black dashed horizontal line that is taken from the double bottom hump made back in 2015 which led to that impulse move up to the August 2016 high. Note how the HUI has been trading around the double bottom hump trendline around the 139 area making little progress.

This next chart is a longer term weekly look at the HUI which shows the same percentage bear market rallies in the blue shaded vertical areas. Note the brown shaded support and resistance zone the HUI has been trading in that runs from the 2015 double bottom hump at 139 to the 2008 low at 150 with a quick tick up to the bottom of the first reversal point point in the blue triangle at 162. So far the HUI has been trading within the brown shaded S&R zone for close to three months now frustrating both the bulls and bears alike.

This next combo chart I’ve only shared with you one time several months ago which shows the pink shaded S&R zones. It’s too early to know yet, but there is a possibility that the PM stock indexes may be building out a double bottom on the double bottom hump from the 2015 double bottom. That was a mouthful. The green vertical shaded area on the left hand side of the chart shows the 2015 double bottoms where applicable. The green vertical shaded area on the right side of the chart shows the possible 2018 double bottoms forming on many of the stocks indexes. Some of the possible double bottoms are forming right on or just above the 2015 double bottom hump like the HUI, SGDM, XAU, XGD.TO and SIL.

I’ve been showing you the 2016 decline as a possible parallel downtrend channel as shown on the weekly chart just above the one above. With the possible double bottom building out I changed the angle of the lower trendline to intersect the possible double bottom which gives us a 25 month falling wedge formation in most cases. Please keep in mind this is only a possibility right now as there is a lot of overhead work that needs to be done before we can entertain the thought that we have a potentially bullish rising wedge building out. If in fact these PM stocks are putting in a small double bottom, which is creating the fourth reversal point in the falling wedge, then in most cases we could possibly be trading right at a very important low. Let me stress one more time, this is only a possibility right now, but it shouldn’t take too long to get our answer.

Next we need to look at oil as it may be sending us an alarm about the US stock markets. There is kind of a misconception that the economy does better when oil is cheap and plentiful, but that’s not totally accurate. Normally the stock markets and the Transportation Average like a rising oil price as long as it doesn’t get out of control to the upside. With oil crashing since the first of October it’s not what I wanted to see for the continuation of the bull market in stocks. Oil should be trading sideways while the US stock markets continue their sideways trading range that began in January of this year.

I have a ton of oil charts so lets start with a daily line chart, in linear scale, which shows the bottom rail of the 2016 uptrend channel giving way this week.

The daly log scale of the same price action shows us a bearish rising wedge.

This next chart for oil is a long term weekly chart in linear scale, which shows the 2016 uptrend channel hitting the underside of the 5 point rectangle reversal pattern that formed the last major high. Note how short and sweet the breakout and backtest were when the bottom rail finally gave way after nearly four years of trading. That big rectangle is just part of an even bigger topping pattern. Note the parabolic rise on the left side of the chart which finally ended at 147 and then the parabolic decline down to 34.82 as measured by that H&S top. For whatever reasons oil measures out best using the linear scale.

This next chart shows the massive H&S top that we had to wait forever before the price action finally broke down below the neckline. As you can see when oil decides it’s time to decline it doesn’t waste anytime in doing so. Note the decline during the 2008 crash and the one that broke down in August of 2014 when the US dollar was in its breakout move out of its eleven year base. A backtest to the neckline extension line would come into play around the 48 area.

This next chart I built out after the 2015 decline ended and drew in the top and bottom rails of a potential downtrend channel that is actually converging. Earlier before the breakdown began I thought the price action would at least hit the top rail before we would    see any serious decline, but that doesn’t look like the case now.

This last chart for the $WTIC shows the entire history going all the way back to the early 1980’s. When oil was crashing in 2015 it broke below the long term brown shaded S&R zone and it looked like it may go all the way down to the bottom of that generational trading range. Oil finally turned on a dime and left a long tail on the quarterly bar which ended up being the bottom. There are a couple interesting points of Chartology on this chart starting with the blue bullish rising wedge which formed just below the brown shaded S&R zone which gave oil the strength to breakout above that 20 year S&R zone. Note the width of that large double bottom that finally ended in July of 2004. The price objective of that generational double bottom measured out to 146.15, each being 277%. If we see oil trading back below the neckline the next area of support would be the top of the brown shaded S&R zone at 40, and below that the 35 area, and below that, well one step at a time.

I would like to finish off this Wednesday Report by looking at the CRB index. Like so many different stock markets, commodities, and the PM complex, 2016 was an important turn in many markets.

This 20 year monthly chart shows the H&S top which launched the impulse leg down during the 2014 – 2015 crash. After bottoming in 2016 the CRB index has been working on its rising wedge formation.

Looking at these long term quarterly charts feels like deja vu all over again. We were also following this chart during the 2014 – 2015 crash in commodities that broke important support at the brown shaded S&R zone. Again, when markets are crashing like that we were looking for a possible test of the major support zone at the bottom of the chart. Like the quarterly chart for oil the CRB finally found support in 2016. As you can see how the rising wedge fits into the big picture. If that 2016 rising wedge breaks to the downside, I know it seems impossible, but could we see the support zone at the bottom of the chart tested if the rising wedge is a halfway pattern to the downside? Commodities back to 1960s prices is hard to fathom . Just following the Chartology

All the best…Rambus

 

 

Wednesday Report…SPX : The Incredibull Market Plays On

Tonight I would like to update some of the charts we’ve been following for some of the SPX that had a wild October to say the least. For whatever reasons October has a lot of volatility which can lead to some important lows and in a few cases a crash which is rare. This past October shaped up similar to many of the previous Octobers we’ve seen since the bull market began in 2009.

This weekly chart for the SPX shows all the Octobers since the bull market began in 2009. For the most part if you took a position in October you were generally ahead of the game the following October with a few exceptions. This past October again marked a good spot to take a position in the SPX for a possible intermediate term move.

This next chart is a two hour chart of the SPX that we looked at back in the middle of October when we were looking for an ABC price decline with the A leg down matching the C leg down in price which hit pretty close. During the October decline the SPX built out a bullish falling wedge which was concluded  with a big breakout gap. Whenever I see a well formed wedge, in this case the falling wedge, I like to look for reverse symmetry on the way up. We have looked at many cases where the left shoulder low and head form inside the falling wedge, with the right shoulder low forming during the backtesting process.

As you can see so far this two hour chart is showing the bullish falling wedge with a H&S bottom as part of the falling wedge. The H&S bottom was confirmed with the big breakout gap this morning. Today’s price action reached the top of the B leg where we could see a pause that refreshes with a possible move down to the original H&S neckline around the 2760 area. If that were to occur and the neckline held support we could end up with a double H&S bottom which is only a possibility right now.

Below is a daily look at the SPX which shows the 2018 trading range which is shaping up to be a parallel rising flag formation if the price action can takeout the top rail. Note how today’s move took out the three moving averages by gapping above the 200 day sma and the 20 day ema and closed above the 50 day ema.  Again it’s possible we could start to see a potential right shoulder build out which would close today’s breakout gap.

Earlier this spring when it became apparent that the first reversal point was in place and the price action began to rally off the bottom, to start the second reversal point to the upside, I strongly suggested back then that I would be looking for a possible four point consolidation pattern to build out because that’s what stocks do during a bull market. Since we only had reversal point #1 in place with the possible 2nd reversal point starting I drew in the top and bottom trendlines as horizontal. There was no way to know what type of trading range would build out so I always start out with a horizontal top and bottom trendline. As more information becomes available you then start to tweak your top and bottom trendlines. It wan’t until the October high, which made a slightly higher high vs the January high could we begin looking for the 3rd reversal point to the downside, which you can see on the chart below.

This next weekly chart shows the now rising flag formation is 3/4’s the way finished if we end up with four reversal points. What is also encouraging about this pattern is that it’s slopping up in the uptrend trend channel which shows a strong bull market is still in play. One last positive on this chart is the SPX is now trading back above its 30 week ema.

If our potential bullish rising flag plays out this simple weekly chart shows how the bull market that began in 2009 is starting to go parabolic. From the 2009 low to the 2016 low the uptrend was steady as she goes. Then from the 2016 low to our most recent low in the rising flag formation, the trend is getting steeper. It’s subtle, but it is possible that our next rally phase could be steeper than the two year 2016 rally phase.

This monthly chart shows the 2009 bull market which is classic in its development. A breakout above the top rail of our current rising flag formation will lead to a similar rally out of the previous consolidation pattern, the bullish expanding falling wedge, to the first reversal points in our current trading range. The chances are that it could also be steeper than the 2016 rally phase if we get a blowoff phase similar to the end of the 2000 bull market.

This next chart is the 21 month trend follower chart which we looked at last month when the price action was testing the all important 21 month sma on the SPX. During the deepest part of the correction last month the 21 month sma held support just as I had hoped it would. It was nip and tuck at the bottom, but so far so good.

To put everything into perspective below is a 75 year quarterly chart for the SPX which shows the 1970’s trading range and the 2000’s trading range which has led to a secular bull market after the big consolidation patterns were finished building out. I know how radical this chart seems to most people but we’ve been following this secular bull market since the SPX broke out from the flat top expanding triangle in 2013.

Below is a 75 year quarterly chart for the INDU which I call the Jaws of Life, because so many analyst were calling it the, Jaws of Death, where I saw a consolidation pattern they saw a top. The backtest to the top rail of the Jaws of Life was one to test your patience as it went on forever before the impulse move finally began. If you look at the thumbnail on the right side of the chart you can see that the INDU is within striking distance of new all time highs. You can also see on the thumbnail that the last four quarterly bars are forming a rising wedge formation.

Since our current bull market that started in 2009 there have been countless opportunities for the bears to be correct, but in the end, at least so far, this bull market has proven them all wrong. One of the most important rules of all time is, “The Trend is Your Friend.” All the best…Rambus

 

 

GOLD POSTS

Of course the Gold market is the most popular topic here at Rambus Chartology.

So we have added a new category on the sidebar putting the Gold Posts  in chronological order for members to more easily follow Rambus’ extensive work in this sector.

“ALL ABOUT GOLD”

13 Episodes including last nights very comprehensive post.

Enjoy

Fully

Weekend Report: 2019-The Year of the Bear Market

In light of the volatile market action since my last report two weeks ago I am dedicating this report towards the big picture view.  I have been presenting the post bubble contraction (PBC) model to you all year long, however I am convinced many still don’t recognize this is actually playing out before their eyes. The noise of daily news events and market commentary has the effect of diverting ones attention away from comprehending the underlying process which is occurring in the world’s financial system.  The purpose of this report is to get you refocused on the big picture.

January 2018- Global Synchronized Market Top

A global top is what we witnessed at the beginning of this year and the down side off of the top is now playing out in according to the script of a PBC.  Unlike the financial crisis of 2008 which started in the USA and impulsed outward, a PBC begins at the periphery of the world’s economy and is then transmitted towards the core of the senior reserve economy which is the USA.  It has always been this way even since ancient times.  The Roman historian Cicero stated that a financial disturbance in the outlying regions eventually arrives in Rome affecting the credit structures of the financial center.  Those of us in North America seemingly have been immune to this all year…until now.  The PBC has now arrived at the doorstep of the world’s financial system and it is now knocking at the door to come in.  If one cared to watch you could see it coming all year, but if you just watched CNBC you just got blind sided.

The outer periphery unravels sending capital fleeing to the center

Frontier and emerging markets have been getting destroyed all year long.  There has been no place to hide for these investors. Home based equities have been crushed, bond markets have tanked, even cash held in savings has not been a haven since emerging currencies have relentlessly sold off.  If you stayed home in any local market sector you got killed…period.  So money fled and flowed towards the financial center and that’s why North America has seemed just fine, in fact booming…until now.

World’s Stock Markets minus USA:

Clearly the aggregate of all of the world’s stock markets minus the USA are now entrenched in a confirmed downtrend, I would argue a bear market.  It has taken on the form of a year long broad H&S top which has now broken down beneath a rolling over 30 W EMA.  This chart says the bears have now got the ball and with capital now flowing away from the outer regions I don’t see the bulls taking back the ball.

Below is a closer up daily view of the MSWorld:

Emerging Markets-A Broad H&S Top ready to accelerate downward

Below we see all the elements of a classic well defined top. A H&S topping pattern with moving averages rolling over and becoming entrenched downward.  Higher volume bars are the red down bars.  There has been no sign of life here since the blow off January top:

Dow Jones Global Index– All the stock markets of the world

Now we put the USA back into the mix to see what all the stock markets in the world look like.  What we see is a massive distribution top which has now broken down under a now declining 30 W EMA.  What this chart is saying is it’s now GAME OVER.

Sure we can expect a back test to the underside of this distribution triangle, which could take the form of a year end rally, but after that and likely when 2019 arrives it’s bombs away.  Welcome to the global bear market of 2019.

Tenants of a Post Bubble Contraction

Let’s review the basic tenants of a PBC, refocusing on the big picture.

  • There have been 5 complete PBC’s since the late 1600’s
  • A PBC comes at the end of a credit cycle which typically spans 50-70 years
  • A PBC is the markets way to reset an economy by purging high debt levels from the system through bankruptcy, debt restructuring and debt payoff.
  • Once the process completes an economy can resume rapid growth rates since there is no longer an oppressive debt overhang impeding growth.
  • The PBC process typically takes 15-20 years and is very painful and typically sloppy.
  • Societal institutions undergo radical change due to the trauma of debt restructuring.

Previous Post bubble contractions

The last PBC visibly began in 1929 and ended in the late 1940’s.  I say visibly because it actually started to take form in 1926 when the real estate market peaked in Florida and the British economy failed to respond to economic stimulus from the US Federal Reserve.  These early symptoms were masked by the stock market blow off which continued into September 1929.  Debt began to contract in late 1928, however the stock market had gained a life of its own and was undergoing a massive overthrow top.  The world’s economy was bloated with unproductive and unserviceable debt which had been building since the bond funding of WWI which began 15 years earlier.  Emerging market debt structures initially began to implode, as we see today, and eventually these forces were transmitted to the core in late 1929 kicking off what is known as the “great depression”.

The PBC of 1873 began with the stock market crash of September 1873 and lasted for the next 20 years.  It was caused again by a massive debt build up from railroad construction and from the financial abuses during the US’s War for Southern Independence ending in 1865.  Building parallel railroads to nowhere using bond issuance was not sustainable and led to the financial collapse under the Grant Administration.

Commodities Peak 8-9 years prior to ALL PBC’s

In all previous 5 recorded PBC’s commodity prices peaked 8-9 years prior to the final peak in equities.  Our current PBC is no different as the world wide commodity peak occurred in mid 2008, nine years before the global synchronous top.  This same sequence occurred in all 5 previous PBC’s.

Long Term Government Bonds should continue to trend higher

LT government interest rates are presently in an uptrend, however rates should turn down once the recession takes hold since the economy will no longer be able to sustain elevated rates.  Government bonds therefore should progress to new all time highs with rates probing new lows in the coming years.  This is hard for many to accept since FED “money printing” would seem to debase the bonds leading to higher rates, but that’s not what the PBC model calls for.  In Japan after their 1989 peak JGBs continued to rally for 15 years despite the most radical money printing regime in modern times.

The EPIC Bear Market of 2019

The average investor has no idea of the gravity of today’s situation. He will come to appreciate it in good time however, but it will be too late for him.  He is in this situation because he has been conditioned to believe that the FED will ultimately save us. They believe the FED has the tools at their disposal to right the ship.  This is tomfoolery pure and simple.

Here is the reality… the era of central banks ability to bubble markets is coming to a close. This ability began with the end of the Bretten Woods monetary regime on August 15, 1971 when they acquired a new “expandable” currency.   This bubble power is now in the process of going full circle as its zenith is now behind us.  Greenspan’s intervention into the market during the crash of 1987 caused a phased transition in central bank liquidity creation.  This liquidity spigot shifted into high gear under Bernanke’s QE policies.  This era of rampant accommodation has now run its course and we are on the back side of this 30 year market intervention era.

One can not doubt that Chairman Powell will change course when the market enters a bear market free fall, but the FED will have then lost its credibility and the buyers will not likely return after the initial short covering rally.   We will then have to endure a full blown bear market.  That is something the USA has not seen since December 1974 at its -70% inflation adjusted bottom from the 1966 highs.

The Good News- Gold in a Bull Market

Just like its always 5 o’clock somewhere, there is always a bull market going on in something.  In a PBC it’s time for the gold stocks to shine.  This is because as commodities decline in price and the real price of gold rises, the cash flows of gold miners will improve and provide leveraged gains to their stock prices.

When will will this occur?  Once the recession takes hold and oil prices begin to decline gold should eventually find a bottom and the gold stocks will enter a bull market.  That’s the operating dynamic, but how it actually takes form is unpredictable.  As the stock market becomes entrenched in a bear market the FED will ultimately change course and inject liquidity.  This event could result in an upward explosion in the gold stocks.  Something resembling the blast off in the great August 1982 bull market times ten will likely occur.  It will be almost impossible to chase once it launches, it’s rise could be relentless.

The Current Gold Stock Rally- The Real Deal?

So is this the beginning of the gold bull?  No I don’t think just yet.  I defer to Rambus’ gold charts, but I see this current rally as a well earned retracement of the prolonged  6 month relentless decline from April to September of this year.  In the HUI chart below it appears likely to be in a back test move up to its break down point.  The bounce in gold is fairly muted as you can see by the gold line.  There is no explosion in volume in the GDX or other individual issues which I expect we will see when the real deal arrives.

Short Squeeze Wild Card

But here is the rub.  Gold is sitting on a massive powder keg of TNT.  There is so much short interest in gold that if it rises up above 1245 it could take on a life of its own.  With over $50B of short interest gold has the potential to rock vertical and in short order, it’s a real possibility.  It’s the job of commercial hedgers to sell gold as they have to forward sell in order to collateralize their loans.   But here is the thing, they are actually net long!  They refuse to sell, this is short term bullish and could lead to a vertical explosion in gold.

I personally don’t want to see this as it would likely flame out once the short squeeze is over and still end up putting in ultimate lower lows before the real bull market begins.  Just be aware.

Markets around the world showing their hand

Before discussing strategy let’s update our view of markets around the world, just in case you still don’t believe this really is happening.  As mentioned peripheral markets have relentlessly imploded throughout the year and now the decline has advanced to major markets as seen below:

Keep in mind that the UK is a very international senior market and its now below a declining 30 W EMA

Germany– Entrenched decline now below a declining 30 W EMA.

Hong Kong- 7th largest market in the world.

All Pacific-Ex Japan- daily chart

China– The Big Market driving the world’s growth

Look again at this chart and think of what it is telling us.  It is highly deflationary and distributive.  There is simply no sign of life here. The decline this year has been relentless, down 30% this year and 53% off of all time highs.  This is signaling a collapse in trade and commodities ahead.  Keep in mind that China consumes upwards of 50% of many of the world’s commodities. Plus the government has just lost control of the Yuan, its crashing.

The USA- Just now starting to recognize the story

So all year long the world’s markets have been bleeding out, but the USA has not felt it, but that’s all changed over the past 2 weeks and we are now starting to see what it feels like when liquidity starts to get drained from the system.  Look at these two leading interest rate sensitive sectors: autos and builders.

The Home Builders– Brutally Relentless

These are sectors that drive the economy, these two charts are showing the market discounting weakness ahead.

State of the US Markets- At a precipice?

I would say it’s getting close, but not starting the big decline yet, hence the title “The Bear Market of 2019”.  Let’s review my hedge fund exit indicator which shows the spread between the 10 and 2 year treasury.  You no doubt have heard that the economy goes into recession when the yield curve inverts.  Well there are plenty of cases where the economy went into recession without the curve actually inverting, just slightly flattening.  So this old saw is an unreliable indicator.  What is reliable is when short rates begin to drop after they have been rising in a mature cycle. That’s because it’s saying the jig is up and the economy can no longer support higher short term rates.  This is the signal that hedge fund managers who have over stayed themselves in this market are looking for to exit the market.  We can see this occurring now in the below chart signaled by the spread rising.

So the actual signal comes when the spread establishes itself in an uptrend after a reversal.  As a chartologist looking at the chart above I would say we are almost there.  The initial reversal occurred on August 27th and then entered an uptrend.  It’s a nice inverted H&S which is now backtesting its breakout above its dashed neck line, but it couldn’t hold above the solid thick down trend line.  If it resumed its advance above its Oct 8th peak I would consider it an established uptrend and expect a panic exit of the market.

So here is my analysis:  Note the vertical blue dashed line placed on Oct 9th one trading day after the peak in the spread.  This is the day that institutional money decided to exit this market en mass resulting in a 1500 Dow point blood bath over the next two days.  I would argue the triggering mechanism was our spread breaking out above the solid downtrend line which made it appear as if a new trend was being established. This changed the psychology and as the vertical breakout panicked managed money as they kept one eye on this indicator.  We now see however, that this move may have been a false breakout so we may have to wait for confirming upside for the real fireworks to begin.  Once it can resume an uptrend above the 150 EMA and certainly the 200 EMA money flow will be in full retreat.

Mr. Markets Most Diabolical Scenario

We all know Mr. Market is a fooler.  He makes his moves only after putting most players on the wrong side.  This may be what is occurring right now so what would that scenario look like?  One more washout to the downside violating the mid-Oct lows would flush out the market and set it up for an nice year end rally.  It would spawn hope and draw in investors for the real killing that may lie ahead.  After rekindling animal spirits a year end rally could then fail towards the end of the year or even into the first quarter.  What would indexes look like then?  They would trace out Mr. Markets most diabolical scenario:

Above Projection: 2019-The Year of the Bear, a massive authoritative distributive H&S top.

The Bear Market of 2019- Strategy Session

I hope you see what’s going on here.  We are entering a global synchronous bear market.  Respect it, as it will hurt you.  Actually, if you are a baby boomer approaching retirement… it can destroy you.

Do no harm:

Question: Using all market data over the past 120 years what is the expected cumulative annual return of the stock market for the next 10 years entering the market with new money from today’s valuation levels?

Answer: 1%

That’s right while Wall Street will tell you the market returns 7-8% real annual returns over the long run (10-12% nominal) , that figure does not consider entering at today’s highly valued prices.  But here is the kicker… even though a 1% annual return over 10 years may seem paltry, before you get there you will likely have to hold through a 40% draw down!!!!  So here is what I tell associates with little market aptitude:  Just go to cash and wait until there is blood in the streets then deploy.  If you do that you can expect a 15 % annual return and sleep well at night.

That’s our base case-Simple and Safe.  Now if you think you want to work for higher returns than that let’s develop a strategy:

Market Strategy

This is a limited overview of the strategy ahead in concept only.  Further detail of actual trades will be presented in the future.  We still have plenty of time to set up for the big moves ahead.

I plan to conduct only limited bear market operations until end of year since I think it is too late to establish entry points in down trodden sectors, wait first for a failed rally. Commodities and their producers seem to be ripe for a decline in the short term, however my objective for the stock market is to buy the dip for the coming year end rally.  The dip buyers have shown up throughout this entire bull market and they will continue to show up until they have been properly bludgeoned.  They should provide the fuel for the EOY rally, likely after one more whoosh to the downside.  Keep in mind that the retail investor typically buys 1/3 of the way into a bear market.  That’s what it takes to wear him down to the point where he says “no mas”.  This point comes in the vicinity of the “Point of Recognition” for the bear.

  • Play the year end rally, especially in the religious high tech space.
  • Short Commodity Producers
  • Short Emerging Markets after they have their retracement rally
  • Look for a turn in gold stocks and go long after a bottom is formed
  • Short Canadian Banks
  • Go long LT US Government Bonds
  • Stay long Uranium Stocks
  • Continue to look for asymmetric investments of opportunity.

I hope you have taken your blinders off and see these markets with eyes wide open.   The world wide post bubble contraction is unfolding according to script.  It is something no living investor has seen before so few are able to understand it.  A PBC is very slow moving as it plays out over 15 years so 99% of investors are unable to recognize it for what it is.  That provides us immense opportunity.

Editor’s Note : Who Is Plunger ?

Who is Plunger ?

 

Late Friday Night Charts…

This weekend I’ll be showing you many long term charts for all the different areas in the markets as part of the Quarterly Report I do for Catherine Austin Fitts who is the founder of the Solari Report. It’s a lot of work but it forces me to look at the big picture for signs that our bull market, which has been in place since the 2009 low, is still intact and viable. When we just look at the short term charts it’s easy to miss the big picture and what it means for the long term. All bull markets will come to an end and our current one will be no different.

I’m currently updating about 100 long term charts that I hope to get finished for part of this Weekend’s Report. Sir Plunger will be posting his Weekend Report also. I can tell you from the long term charts that I have updated so far that many have begun to trade below their 12 month sma which is the first sign their bull market might be in trouble. There has been a big change in the last three months, especially the last month, so it’s time to pay close attention to what the charts are showing us. All the best…Rambus

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UUP Update…US Dollar ETF

Many investors are giving up on the US dollar as it has been consolidating for some time now. There is a pattern on the shorter term daily chart which is starting to come alive, but needs a little more work to complete.

Below is a daily chart for the UUP which is still showing bull market chariteristics as it has been forming higher highs and higher lows which is creating an uptrend. I have shown you many cases of a classic H&S pattern when the price action forms the left shoulder and head inside of a wedge with the right shoulder low forming on the backtest or fairly close to the backtest to the top rail of the wedge pattern or neckline symmetry line.

In mid September we looked at this blue bullish falling wedge which could have been a stand alone pattern that could have started the next impulse leg higher for the UUP. As you can see the price action failed to take out the top of the blue falling wedge. That suggested to me a bigger consolidation pattern is most likely to form. It will still be a consolidation pattern but a slightly bigger consolidation pattern. Just like the daily PM combo chart we looked at this morning with the uncompleted expanding rising wedge building out the UUP also has an uncompleted H&S consolidation pattern under construction.

Note how the left shoulder and head formed inside the blue bullish falling wedge with the right shoulder low testing the neckline symmetry line today. Again, keep in mind this H&S consolidation pattern won’t be complete until the neckline is broken to the upside. If the low this morning holds support on the neckline symmetry line the last order of business is for the UUP to rally above the neckline to complete this high level consolidation pattern.

Below is a longer term daily chart which shows an even bigger H&S bottom building out. There is some really nice symmetry taking place on this chart starting with the neckline symmetry line which shows the low for the right shoulder. The small H&S consolidation pattern we just looked at on the daily chart above is also showing a neckline symmetry line which is showing the bottom for the right shoulder as well. On the left side of the H&S the UUP built out a H&S top which led to the February bottom this year. Now we have a H&S consolidation pattern forming on the right side of the head that somewhat matches the H&S top on the left side of the chart but inverted. As you can see the UUP is trading at a critical area on the chart. The implacations for many different areas of the markets will most likely be profound if this 15 month H&S bottom completes.

Below is the HUI, UUP and GLD combo chart we’ve been following which has done a little morphing, but the main theme of this area being a place for some type of consolidation pattern to build out is still in place. Each has been testing an important trendline over the last two days. Will they hold is the $64,000 question?