Wednesday Report…Precious Metal Pot Pourri

I know it may have come as a shock to some of you on why I raised some capital by selling a few PM stocks today. Whenever you see a false breakout of any chart pattern and the price action trades below the bottom rail of the original pattern that can setup a bearish situation. It’s like a head fake. The stock forms what looks like a great breakout and maybe even accompanied by a breakout gap. Everything looks fine. Then you get the backtest to confirm the breakout. Sometimes we can see several days of backtesting waiting for the breakout move to begin.

The first sign of trouble is when you see the price action trade below the breakout point or below the top rail in this case the bullish rising wedge. Many times the trade can still be saved if the bottom rail of the rising wedge ends up holding support. Once the bottom rail gives way then red flags start flying that something is amise. Many times when you see a false breakout of a chart pattern you can see a strong move in the opposite direction. Again, its like a head fake that gets you moving in the wrong direction before the real move takes place.

Lets start by looking at a daily chart for AU which built out a very nice looking rising wedge formation complete with a breakout gap above the top rail. AU was one of the leaders and it looked like it was showing the way higher for the PM stocks but after the reversal bar at the top of the chart AU declined back into the rising wedge negating the breakout. All was not lost yet as the bottom rail of the falling wedge could still provide support and save the pattern. Once the bottom rail was lost that put me on high alert to watch the price action very carefully for more deterioration. Monday morning AU opened with a downside gap and today the price action closed below the 50 day ema which strongly suggested to me it was time to get out of this trade.

All is not lost yet however as AU could be in the process of building out some type of consolidation pattern with the first reversal point being the false breakout high. What we need to see next is for a low that would create the second reversal point, another rally followed by one more reversal to the downside to create some type of four point consolidation pattern. Right now there is no way to know what kind of consolidation pattern may form. One important aspect of this daily chart is the one year H&S bottom which should support a much bigger rally than what we’ve seen so far. As you can see the rally out of the August low was very strong so now is as good a time as any to see AU consolidate those gains.

Below is a weekly chart for AU which shows its strong impulse move out of its 2016 bullish falling wedge. Note the blue triangle that formed in the middle of the 2015 bearish falling wedge as a halfway pattern to the downside. As AU was in a strong decline one would have expected the triangle to breakout to the downside. AU is now moving higher so we should expect to see whatever consolidation pattern builds out should breakout to the upside.

BTO.TO also built out a nice looking rising wedge formation but it too failed to take off and should now be forming some type of consolidation pattern on top of its H&S neckline.

I was hoping that the rising wedge was the consolidation pattern that was going to give BTO.TO the energy it needed to finally takeout that massive overhead resistance line that goes all the way back to the 2011 high. There is already the 2016 rectangle that has been forming below the 2011 high. That will be a big deal when BTO.TO finally moves above that massive line in the sand. There are just a few PM stocks that are trading near their all time highs.

XGD.TO is another PM stock that had a false breakout above the top rail of its rising wedge but failed to follow through to the upside.

This long term weekly chart still looks good with the top rail of its 2016 falling wedge and the 30 week ema coming in at 11.25.

The only real question is will we see a complete backtest to the top rail on this long term monthly chart?

The daily chart for GPL shows it has formed a rising wedge above its nine point rectangle reversal pattern. As you can see it has been in backtest mode to the top rail for about a week now with the 200 day sma helping so far with support. As long as the price action can trade above the bottom rail of the blue rising wedge I will hold on to my position.

This weekly chart for GPL shows the problem I’m seeing with many of the PM stocks I follow. Most have put in some type of small reversal pattern at the fourth reversal point within their 2016 falling wedge or downtrend channel. Many have now rallied up to the top rail and are backing off which tells us the top rail is still hot. We had a similar situation back in 2013 when the PM stock were breaking down from their massive 2011 H&S tops. They all didn’t break their necklines at the same time. Back then the weakest PM stocks broke down first with the rest taking their turn until GG I believe, was the last one to finally break below its neckline. In our current setup we should see the strongest PM stocks breakout above the top rail of their 2006 trading range first with the laggards to following behind.

GPL monthly. Close but no cigar just yet.

AR.TO shows a perfect example of the small reversal pattern forming at the bottom of its 2016 falling wedge with a rally up to the top rail. It’s now backing down and hopefully will find support on the neckline before it tries to take out the top rail again.

This long term monthly chart for WPM shows it has broken above its 2016 bullish falling wedge but has another important area of resistance to overcome which is the top rail of the black 2011 expanding falling wedge. We could even see a ping pong move between the blue and black trendlines.

SAND is setup a little differently as it formed a symmetrical triangle as its 2016 consolidation pattern and has broken out above the top rail. Note the small double bottom that formed at the last reversal point.

SAND is currently trading between the top rail of its 2016 triangle consolidation pattern which is the right shoulder of a very large H&S bottom. Here too we may see a ping pong move between the neckline and the top rail of the blue symmetrical triangle.

This weekly chart for AEM shows the price action touching the top rail of its 2016 falling wedge and backing off a bit.

The long term monthly chart for AEM shows the 2016 falling wedge forming inside of the massive 2008 rectangle.

This long term monthly chart for BVN shows the 2016 bullish, RISING WEDGE, forming the right shoulder of a very large H&S bottom.

FNV broke out of its 2016 bull flag and looks to have completed a backtest to the top rail.

FNV has always been one of the leaders when it comes to the precious metals stock. This long term monthly chart is a “WHAT IF” chart. What if this is a massive bullish rising wedge?

RGLD is another precious metals stock that leads the rest of the PM stocks higher. It too has a “WHAT IF” possible bullish rising wedge. Note the blue rectangle that formed at the fourth reversal point.

This long term monthly chart for NEM shows its been building out its 2016 falling wedge but unlike a lot of PM stocks it hasn’t been able to rally up to the top rail and is showing relative weakness.

GG is one of the biggest dogs in the big cap precious metas stocks areas as its still trading below its 2008 low.

What these PM stocks above show is that there are some bright spots within a sea of mediocrity. The leaders will lead the way as they always do and the rest will move when their time is right. I know it feels like one needs to be fully invested but there are going to be many new buy signals when we see the top rails of those 2016 trading ranges begin to give-way. If one is a long term investor then you can sit tight but for most of us mere mortals sitting tight can be very difficult when we see our profits slowly slipping away. I think the name of the game right now is patience and let some of the PM stocks that have had a strong run out of the October low to consolidate those gains. There is nothing I can see right now that calls into question that the next leg up in the bull market that began late last year is in trouble. All the best…Rambus

 

 

 

 

HUI Update…A Treat for Long Suffering Gold Traders.

Below is the combo chart which has the HUI on top, the UUP in the middle and GLD on the bottom. Everything looks fine.

The GDX daily chart shows a nice breakout and backtest to the top rail of the bullish rising wedge and now the door is open for a move higher.

Below is the weekly chart for the GDX which shows the breakout starting to gaining some  momentum.

Below is the weekly chart for the GDXJ which shows all systems go.

I will be out of the office this afternoon and probably won’t make it back before the close. It’s been a long time coming so enjoy this day as there will be many more to come. It’s just getting started.

Late Friday Night Charts…Silver: A Long Term Perspective

Tonight I would like to show you a couple of long term charts for Silver that puts where silver is currently trading into perspective. We can look at the hourly charts or even the daily charts for the short term patterns, but if you really want know where a stock is relative to its history we need to look at the long term view. The more history a stock has the more relative the current price action is.

Lets start with a 16 year monthly chart for silver which seems like a long time but in the big picture it only shows us a small part of its history. The dominate chart pattern is the 2011 bear market downtrend channel which is almost perfectly parallel. I purposely left the top rail of the 2011 downtrend channel and the top rail of the 2016 triangle thin so you can see the critical area silver is now trading at, red circle. So far this month silver has traded as high as 15.95 which puts it right against the top rail of the 2011 bear market downtrend channel and the top rail of the 2016 triangle.

I have viewed the 2016 triangle as a halfway pattern to the downside for well over a year or so but with the price action hitting the top rail this month that completed the 5th reversal point which now puts the triangle in the reversal category. I can now take the question mark off of reversal point #5 and add it to the possible reversal point #6. All this means is that we now have 5 reversal points in place to create a reversal pattern if the bulls can punch through the top rail. If they can’t and silver begins to decline all the way down to the bottom rail then a consolidation pattern will be in the picture again. An odd number of reversal points creates a reversal pattern and an even number of reversal points creates a consolidation pattern. The bottom line right now is that we have a triangle reversal pattern in place until it is negated if silver trades backdown to the bottom rail.

This next chart shows you why the more history a stock has the better perspective one gets when it comes to really big chart patterns. This chart is one of the very first charts I ever  posted publicly back in the old days before Goldtent was born. There is a website named Gold Eagle where I posted this chart for the first time which was probably around the 2004 – 2005 timeframe. At the time I showed this massive 25 year H&S bottom that was building out that was showing some nice symmetry. The double neckline looks similar to the double necklines we’v been following on some of the US stock market indexes which I hope will give us the same results as this 25 year double neckline H&S bottom.

Note the blue bullish rising wedge which formed between the two necklines which gave silver the energy it needed to finally break free from 25 years of resistance. Neckline #2 also came in handy during the 2008 crash which gave me a place to look for initial support.

Our 2011 bear market downtrend channel doesn’t look so daunting when compared to the rest of this 50 year chart. As I mentioned earlier when we looked at the monthly chart above for silver that I was looking at the 2016 triangle to be a consolidation pattern to the downside until we just completed the 5th reversal point. As I’ve said so many times during this bear market, it’s now up to the bulls to take out the top rail of the 2011 bear market downtrend channel and the top rail of the 2016 triangle trading range. It is a trading range because neither the upper or lower trendline has been broken. We are close but no cigar just yet.

Sir Plunger will be doing the Weekend Report so stay tuned as his reports are always filled with a lot of history and well thought out objective analysis. Have a great weekend and all  the best…Rambus

 

Plunger’s Response

Plunger (at the Chartology Forum) has received some questions about his work.

His responses are so poignant that I feel they should be posted here at Rambus1.

Happy New Year to all Members : May 2019 be a prosperous trading year for all.

FGC

……..

Questions answered

Plunger

The Weekend Report seems to have made somewhat of a stir, as one would have expected. Making a call that a secular bear market has begun and will be in force for likely well over 10 years might just scramble some brains I suppose. Also the result of this is there will be a “changing of the guard”. This phrase simply means different asset classes will come to the fore and will be favored by the market. A bull market in real money will eventually come to dominate along other assets which reflect their intrinsic store of value features. Innovative technologies which serve to improve society will of course always be subject to attracting capital and will see their own bull markets from time to time.

Below I will address some of the questions asked referring to the recent weekend report:

Question #1– You say that stock markets are now in a secular bear market. At the same time, at the beginning you have the following: “In this phase of the bear market that’s about all you need to know. The market’s going lower until it gets its drugs. But then what? Well, we get a hellacious rally, but then investors should finally come to their senses.”

Answer #1
The rally which you refer to is a bear market rally? I assume that it would not be higher than the highs we have seen before in 2018 else it would not be bear market rally?

ANS. Yes, a BMR or a full blown secondary reaction in a bear market. Typically SR’s last 3 weeks to 3 months. How high could it go? Well, keep this in mind this future rally would come from a market level much lower than today. We know this because the FED has said no QE until the market falls significantly further. So let’s speculate with some numbers: say early next year the market rolls back over and heads down. It violates the late December lows and starts to cause panic. By then we start to get some confirming negative economic numbers coming out which is what the market has been discounting over the past 3 months. Say the DOW drops below the psychologically important 20,000 level. That means the DOW is now down -26%, Baby boomers are starting to panic as they realize they are screwed and their retirement plan now looks to be going up in smoke. Have you seen those E-trade ads where they show old geezers in the work force? That then becomes the fear. It causes a market rout, the DOW free falls 2000 points in a day. The FED makes its move, here they come to the Rescue… Thank god they are going to save us! (small g intended, for the financial god’s)

They announce QE4. It is a multi faceted program with different elements for everybody. It alleviates many fears. Not only is the FED now going to buy treasury debt but they are going to monetize state pension funds so government workers will be able to retire comfortably. Furthermore the FED announces that in later years they will introduce other QE programs, QE5 which will buy back all student debt which will allow the younger generation to be able to focus on their own self-actualizing needs with the side benefit of advancing the economy. The millennials will now be able to concentrate on their “experiences”. Later still, QE6 will introduce UBI (Universal Basic Income) addressing the lower strata of societal needs. As a minimum every citizen will be entitled to $1,800 per month in addition to already existing social welfare programs. UBI will now will be considered a “human right”. Buried in the fine print of QE6 is the language that corporations can now write off the value of stock buybacks as a corporate expense.. Again a little bit for everyone.

So of course the market loves all of this and puts on an impressive surge. How high? Well we are just going to have to see, but likely it would fail prior to exceeding the all time highs. It would be a rally that the boomers welcome as something they can sell into having the bejesus scared out of them just months before.

Now obviously the above can be considered as “making shit up”, but I think you get the idea. Who knows how the FED will respond, but the bottom line is the market has now been broken, all rallies should be used to sell into. We are in a secular bear market and you should get on to the correct side of the market. Future rallies should be failing rallies. How high will they go? That’s unknown but we will use our tools to measure them, Fib retracement guidelines, moving average resistance and levels of compression (ROC). Nobody ever said this is easy and if you are looking for a soothsayer to guide you accurately then I have a news flash: There are none and if someone claims he is then he is a crank.

Question #2 “Is this your first call for a secular bear as of now which is a pretty big deal or were you fooled many times in the past and made the same call and changed your mind. I say that because gold bugs always see the sky falling and have been burned so many times and have heard these calls before so I say that with all due respect, just curious. And if we are really entering this time zone do we really abandon stocks altogether”

ANSWER #2
Quite a wordy question so let me rephrase it: How reliable is this secular bear call? I don’t really know you, so are you just another gold bug nut job making incendiary claims for attention? Just to get a sense of you let me ask, have you already prepared your doomsday bunker or do you already have a shack in the woods in northern Idaho? How many rounds of .223 do you have stored and how many pallets of MRE’s do you keep stacked in your garage?

First off over the last 100 years there have only been 2 secular bear market triggers, 1929 and 1966. So it’s a bit difficult to establish a track record making these calls, I was only 11 years old the last time and my notes were not detailed enough to get that call off. Have I ever stated we were entering a secular bear market in anything before? Ans: No. In the summer of 2017 I briefly thought we may be putting in a cyclical bull market top in the DOW, but that was quickly proven not to be the case. The great analysts of past eras said a top call is far more difficult than a bottom call. Some of the greatest market observers of the past made a few erroneous early calls of market tops. William P Hamilton, probably the greatest market prognosticator ever thought the bull market was over in 1925. He later went on to amazingly call the turn of the tide in October 1929 against all public sentiment. Roger Babson thought the DOW topped in the Summer of 1928, he was one year early, but he later came back and called the ultimate top within a few days of it in Sept 1929.

By no means am I inferring I am in the same league as these gentleman, I am just a guy offering insights from a life of non-professional market study. Frankly, if anyone wants to consider me a fringe character I really don’t give a damn since I only trade for my own account and do not give market advice. Personally, I have no interest advancing any false narratives. I am not trying to uphold a narrative trying to sell a product whether it be an investment vehicle or even newsletter advice. I am just giving the unvarnished truth the way I see it. If that comes across as suspect, well that’s fine I don’t really care as the only thing I have to prove is accounted for in my own personal balance sheet. I am held to account by Mr. Market.

Question #3 (follow on question). “To me even if we are entering a secular bear we have a market of QE junkies that will refuse to believe it at all cost and will listen to their dealers on CNBC so there seems to be many opportunities if one were nimble enough not to be crushed by a new tweet or headline of the hour. I hope more people begin to talk on this forum”

ANSWER #3. Of course they will refuse to believe it. This is really just a statement of the obvious, as this has always been the case. It’s why the bear market doesn’t end today. If they all believed we were in a bear market then they would sell and the bear market would be over-period. But the historical record shows that retail investors buy one third of the way into a bear market. They still believe the bull market narrative and see the lower prices as bargains. They are buying the dip. But over time this dip buying quits working since it’s a bear market it becomes increasingly painful. They get worn down over time until eventually they are like Roberto Duran the “hands of stone” fighter. On November 25, 1980 the legend states he simply stated “No Mas”. But that is not what he really said, the truth is (stated by Duran) he said “No Sigo No Sigo No Sigo”. which translates to ” I am not going any further”. Well that describes perfectly the course of the retail investor in a bear market. He has now prepared himself for the point of recognition. When it comes soon thereafter there will be a panic to get out of the market. Welcome to Phase II of the bear market.

This is how it has always been and if one thinks the “QE Junkies” can hold out against the great tide of the primary trend then you are going to get a history lesson.

Question #4 Is uranium now the flavor of the month and since KL wasn’t on the buy list is it a non-starter?

ANSWER # 4
Uranium is in a long term bull market. Look at the charts of the quality names. Massive bases taking 3-4 years to form. The bigger the base the bigger the move. So after the quality stocks put on moonshot moves coming out of their bases then pull back to trend we get screaming and panicked claims that the bull market never started and it was all just a flash in the pan. Let me say this: This sector is not for 98% of all investors. I have stated numerous times that uranium stocks are the most volatile stocks in the universe…. more volatile than silver, canibis or anything. If one gets rattled by a pullback to trend then he should not be in this sector. Often times a technical analysis site is ruled by the “what have you done for me lately” syndrome. Janet Jackson would be proud.

I am at the heart a value driven long term investor with a technical bend who doesn’t mind trading targets of opportunity as they present themselves. But don’t lose site of the reality that the big money is made in the long term full cycle steady as you go approach. I suppose the technical analysis element confuses many into thinking ya gotta make money this week or this month and if you are not then the asset should be abandoned. I would think the position I have held in Scandium over the past 3 years might dispel this notion as it pulled back 70% and I held it through the cycle purposefully because I believed the story had not changed. This is one man’s approach, you can do what you think best for you.

Kirkland Lake: First the best info on Kirkland comes from Eric Sprott. Put him on your Yahoo newsfeed. It is not my intention for my opinions to be a recommended buy list. I am not doing that as anything I mention just consider as an investment idea. I can’t recommend anything for anybody as I mentioned I trade for my own account only. There are many great investments in the gold space I don’t mention or even know about. As far as Kirkland it’s a great investment, but it has moved too far for me to be interested. It’s just a percentage move thing that’s all.

Question #5 Will the EU and Euro Break down like the Soviet Union?

ANSWER #5
I doubt it, but I would avoid it. These are deep geopolitical questions that even the Henry Kissinger’s of the world can only guess at. Hey they all missed the breakdown of the Soviet Union anyway. But if there was any one signal that foretold the breakdown of the Soviet Union let me ask what would it have been? It would have been market related. It was the collapse of oil from $40 to $10. The rot in the system had built up for 70 years but it was the cutting off of revenue that kept a propped up system which allowed it to fail. So we avoid Europe and watch the charts. They are in a deep bear market now, watch it from the sidelines. We can only guess what it leads to.

Answers to some of Lawrence’s questions:. I concur with Fully’s response “if you are counting on uranium stocks to make your retirement….” Actually I would add if you are counting on your uranium stocks for retirement you are screwed! Why? Because Mr. Market knows this and he will use the importance you have placed of this investment against you. You have placed so much importance in the performance of these stocks to make up for the past that the inherent volatility will blow you out and leave you worse off than you were before despite it being a bull market. That’s what people don’t get that investing is more a psychological game than anything else. And the worse enemy is oneself.

Dave Collum’s year in review article had a great principle. He says one should save for retirement and invest to mitigate the effects of inflation. I think this is a sound investment principle. Also in Dave’s report he quotes Howard Marks as saying the biggest mistake investors make is their reach for yield. Sounds to me that this is a pitfall you may be setting yourself up for.

Updated: December 31, 2018,3:13 pm — 3:13 pm
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5 CommentsAdd a Comment
Afasilver15 December 31, 2018,3:08 pm at 3:08 pm Edit
Thanks Plunger … we appreciate your thoughts and expertise … please keep them coming. 2019 will be interesting for sure! Happy New Year.

Reply
Bleu9 December 31, 2018,4:58 pm at 4:58 pm Edit
Thank you Plunger, and no I am the furthest thing from a goldbug, after being burned in 2008 I am trying to learn from wisdom filled people such as yourself but I am kind of blown away that if one were to use Dow theory as the basis of the call then why aren’t more people chiming in but perhaps in my ignorance I`m not reading the tea leaves right. Thank you for the responses …I appreciate it !

Reply
Plunger December 31, 2018,6:06 pm at 6:06 pm Edit
Surprised by people not understanding the significance of what Dow Theory is saying?…. Really? Well, you shouldn’t be. Actually that is what one would expect…ignorance.

First off I am only aware of one other person sounding off on Dow Theory and it has been Trader Vic. He is not what one would refer to as a main stream guy. Plus his reference was actually incorrect when he made it. He mentioned a Dow Theory sell signal occurred in early December . No it didn’t because it only triggers on a closing basis his call was based on intra day numbers. It actually occurred on December 14th as I pointed out at the time. But that is a somewhat minor technicality since it eventually triggered.

But Dow Theory does not make secular bear market calls. It only makes bear market calls since it does not distinguish between the two. Dow Theory is based on the study of valuations and market actions. Many would point out that the decline occurring in 2015 was a Dow Bear Market trigger as it completed all of the technical hurdles we have talked about. But it was an invalid signal as the only Bear Market signals that are valid are those that come in Phase III of a bull market. In 2015 we were not in Phase III we were in Phase II, therefore the decline could be classed as a mid-point slowdown.

So DT has declared we are in a bear market currently. This fact combined with the universal levels of extreme valuation super imposed on the upside blowout in RSI momentum gives me enough data to declare a secular bear market is now in effect. Elliot wave indicators also give validation to this pronouncement.

You should not be surprised that you don’t hear about this from any quarter. Trust me few people in the past were aware of this in past secular market tops.

Reply
paul G December 31, 2018,7:59 pm at 7:59 pm Edit
Plunger…..and you answered all questions with such complete composure!
You are the man,