Wednesday Report…Important Inflection Point For the PM Complex: Part 2 : Currencies

In part 2 of this Important Inflection Point For the PM Complex, we’ll look at some US dollar charts along with a few important currencies of the world. I don’t have to tell you that the US dollar can play a very important role in how the PM complex and commodities in general may perform. Even though it’s never a perfect correlation important turning points can appear very close to the same time. We’ll start with the short term charts and work our way out in time to the very long term charts.

This first chart for the US dollar shows the sideways trading range with a H&S bottom that formed last summer and the current one that had a breakout above the neckline last Friday with the backtest now in progress around the 97.25 area today. The H&S price objective from last summers H&S bottom was up to the top of the trading range at 98.95. If our current H&S bottom plays out it will have a price objective again up to the top of the trading range around the 98.65 area.

This next chart for the US dollar is basically the same one we’ve been following on the UUP / HUI combo chart on many of the Market Update posts. Here you can see the August 2018 rising wedge formation that is going to be either a bullish rising wedge or a bearish rising wedge depending on which direction the breakout occurs. This rising wedge in now 18 months in the making and a big move will take place once the direction is made. Note the smaller H&S bottoms that have formed on the bottom rail at each reversal point. You may have noticed the the right shoulder on the daily chart above is much shallower than the left shoulder. The reason that may be the case is because the right shoulder low has formed on the bottom rail of the August 2018 rising wedge formation after the head was made on the throw over.

Now lets step back in time and look at a 4 1/2 year weekly line chart for the US dollar. Here you can see how the August 2018 rising wedge fits into the big picture. If the price action breaks out through the top rail it will be a bullish rising wedge and will be a halfway pattern to the upside. A breakout below the bottom rail would be good for the risk off trade.

Since the 2018 low the RSI has been declining while the US dollar has been rising. Many technical analyst would call that a negative divergence and would be very bearish on the US dollar. One of the hallmarks for a bullish rising wedge or flag is that they almost always are accompanied by a negative divergence. Another way to look at a bullish rising flag or wedge is that they are like a running correction, the price action slowly keeps rising while the indicators come off overbought conditions.

Now lets go back even further in time and look at a 25 year monthly chart. This chart shows a very large rising wedge formation after the breakout from the 11 year big base #2 in September of 2014. This chart really puts the August 2018 rising wedge formation in perspective and shows how it could easily be a bullish rising wedge which has been slowly morphing into more of a rising flag formation over its life. The 30 month ema has been doing a great job of holding support during the formation of the 2018 rising wedge formation. If the big 10 year black rising wedge keeps playing out to the upside it could have a price objective up to the 2000 bull market high around the 121 area several years down the road.

Next is the old epiphany chart I built back in 2014 when I discovered the two 11 year fractal bases labeled, BIG BASE 1 and BIG BASE 2. That is one of those situations when you discover a big chart pattern well before it breaks out. We had to wait roughly 5 months before the actual breakout, but it was worth it. That big vertical rally out of big base #2 was something to behold which also put the risk trade back on for commodities in general. I put the August 2018 rising flag in red so you can see how it fits in to the 2011 uptrend channel.

This next chart for the US dollar shows the impulse move out of big base #2. This is a good example of how a strong impulse move should look using monthly candlesticks. In a strong impulse move up you should see a string of white candlesticks all in a row. In a strong impulse move down you will generally see a string of black candlesticks all in a row.

Lets change it up a bit and look at a daily chart for the $XEU, euro. If the US dollar is forming the 2018 rising wedge then the XEU will be forming a 2018 falling wedge of the same size. This long term daily chart shows the August 2018 falling wedge with a false breakout gap above the top rail. We looked at the possible small blue falling wedge on the US dollar earlier in this post while the XEU is forming a small blue rising wedge inversely to each other.

We’ve been following this 25 year monthly chart going back to when the right shoulder, blue rising wedge, was still under construction. That is the same impulse move down in 2014, out of the right shoulder, which also took out the neckline that most currencies had at the time which devastated commodities. Here again you can see the blue August 2018 falling wedge and how it fits into the big picture.

Below is the quarterly chart for the XEU which puts that massive H&S top in perspective.

That August 2018 rising wedge we’ve been following on the UUP / HUI updates is showing up on most of the important currencies of the world. Below is a long term monthly chart for the Canadian dollar which shows its blue rising flag that began forming in December of 2018 shortly after the US dollar. As you can see this month the $CAD is beginning to decline off the top rail of its blue rising flag.

This next long term monthly chart is for the $XAD, Australian dollar. Its been finding some initial support at the previous low where the 2016 bearish rising wedge began forming. The 12 month sma has been doing a good job of holding overhead resistance.

The $XBP, British Pound, was trapped in a massive sideways trading range for close to 30 years before it finally broke below its major brown shaded support and resistance zone shortly after the BREXIT vote in June of 2016. After the 2017 low was established a counter trend rally took the XBP back up to the brown shaded support and resistance zone where it had reversed its role to what had been support for close to 30 years to resistance. It looks like the price action is either building out a double bottom reversal pattern to the upside or a consolidation pattern that will take prices lower.

Next is the $XSF, Swiss franc, which has been trading in a fairly narrow trading range inside of the blue 2015 rectangle which is inside of a bigger black 2012 falling wedge. Not much more to say about this currency until it breaks out one way or the other.

What these long term charts are showing us is that while the US dollar has been in a bull market since 2011 most currencies have been in a bear market over that same timeframe. Can the PM complex sustain a bull market if the US dollar continues to move higher over the long term? A trend stays in motion until it changes or the trend is your friend, are a couple of axioms that hold up well when it comes to the markets.

I still have several more important charts to show you, but I will have to wait until this weekend as I’m out of time. All the best…Rambus

 

Markets Update…Home on the Trading Range

Today we are finally getting some clarity on the August 2019 trading range for the PM complex. With just a couple of PM stocks taking out their August 2019 trading range most fell short. Looking at the daily line PM combo chart below today’s price action is showing many double top formations similar to what we saw at the August 2019 high, see thumbnail on right side of the chart. If this is correct then we should see another decline back toward the bottom of the trading range to complete the 3rd reversal point. Keep in mind we are still in the consolidation phase that is going to be more of a time thing as we have most likely seen the lows or close to the lows.

Since the 4th reversal point is always the most difficult to spot in real time I connected reversal points #1 and #3 which could show the top of the trading range. I then dragged the top rail down to the 2nd reversal point to show how the possible trading range may play out using parallel trendlines. If the consolidation pattern is going to be a triangle then we’ll see a higher low vs reversal point #2. It appears the original bigger trading range I showed last fall may be coming to pass.

Below is a daily chart for the GDXJ which shows the price action rallying right up to the top of the August trading range but couldn’t breakout. We could see some possible support as the top of the rising flag is now being tested. As you can see the Chartology did call for a move up to the top of the trading range using the blue bullish rising flag as a halfway pattern as shown by the blue arrows.

The GDXJ daily line chart.

Below is a daily chart for the USO, oil fund, that had a rough day but is finding possible support on the top of the 5 point rectangle.

This 2 hour chart shows the rectangle reversal pattern and how the price action has been reversing symmetry to the upside, how it came down is how it’s going back up. The blue circles show the price action above the rectangle.

 

 

Weekend Report…Commodities : Step By Step , Inch by Inch

Tonight I would like to update some commodities charts we haven’t looked at in a while. There have been some subtle changes taking place that need to be addressed. Just like the PM complex that topped out in 2011 many commodities also topped out that same year and have been correcting ever since. With the US dollar at an important inflection point it may be time for commodities in general to show some relative strength which they haven’t done for a very long time.

Lets start with this very long term monthly combo chart which has the CRB index on top with the US dollar in the middle and gold on the bottom. Back in April of 2011 the CRB index topped out while the US dollar bottomed out exactly at the same time with gold topping out 5 months later in September. As you can see there is a mild  correlation between the CRB and gold with their 2011 trendline both sloping down while the US dollar is sloping up.

There is an old saying that goes something like this, gold leads commodities at the beginning of a bull market and then when the time is right commodities will begin their bull market following gold higher. If you look at the CRB chart on top and the gold chart on the bottom you can see gold broke out above its 2011 downtrend line in January of this year while the CRB index is significantly below the top rail of its 2011 downtrend line. Has the CRB index finally reached the point where it might start outperforming gold? As the inverse correlation between commodities and the US dollar is fairly good that time might be at hand.

Last week the UUP backtested the bottom rail of its August 2018 rising wedge formation around the 26.80 area after it bounced off the neckline of the possible H&S top and the 30 week ema. The price objective for a rising wedge is down to the bottom of the rising wedge at reversal point #2 at a minimum. Many times the impulse move down can be very strong without much in the way of strong bounces. Note the 5 point bearish falling wedge on the left hand side of the chart.

Here is an example of what can happen when a large rising wedge finally runs its course and breaks out to the downside. The $TNX, 10 year bond yield, built out a 2 year bearish rising wedge which declined almost all the way down to where the rising wedge began to form just above 13.50. You can see the blue bearish falling wedge, which we know shows up in a fast moving impulse move, was its only consolidation pattern that formed. Since the initial low on September 3rd the TXN has been chopping out a possible small rising wedge formation which still has more work to do before we know if will be a bullish or bearish rising wedge or part of a consolidation or reversal pattern. Just something to keep an eye for now.

If the inverse correlation holds up between the US dollar and the CRB index then if the US dollar is building out a possible H&S top then there is a good chance that the CRB index is building a possible H&S bottom. Below is a one year 3 month daily chart for the CRB index which shows a H&S bottom with a breakout and backtest above the neckline last week.

Since 2016 the CRB index has been building out a possible 5 point bullish rising flag reversal pattern. Initially I had connected the bottom rail using the 2016 low followed by reversal point #3 which didn’t give a very clear bottom trendline when the price action worked its way out to reversal point #5. In the summer it looked like the CRB index was going to breakout to the downside, but there was very little follow through which is when I saw the symmetry failure of the bottom rail as shown by the two blue circles. If you take the distance below the bottom rail, false breakout, and add that distance to reversal point #3, that fills in the gap. Basically if you subtract the distance from the false breakout and add it to the failure at reversal point #3 you then have a very symmetrical rising flag formation where the distance between all the reversal points are the same.

Next is a long term weekly chart for the DJP which shows a similar trading range we just looked at on the CRB index above which started to form at the 2016 low. Since the first of this year it looks like the DJP has been building out the blue triangle which will need an odd number of reversal points to be a reversal pattern to the upside. If the blue triangle breaks out to the upside it will send a very strong message that the top rail of the 2016 rising flag formation is going to give way.

This last commodities index we’ll look at is the long term 25 year look at the $GNX which is showing a very large 10 year falling wedge formation. What is interesting about this chart is the fairly large H&S bottom that formed at the 4th reversal point in the 10 year falling wedge. You can see the blue triangle that has formed right on top of the neckline as the backtest which is now starting to breakout to the upside. At a minimum the price action should make it all the way up to the top rail of the 10 year falling wedge formation and if the bull market really catches fire we’ll see a breakout which would then complete a very large consolidation pattern.

Copper is an important commodity that generally shows the health of the world economy which is why they call it Dr. Copper. Just like the daily chart for the CRB index we looked at earlier, Copper has also built out a nice H&S bottom on this daily chart below that also had its breakout early last week. The left shoulder formed the blue expanding rising wedge while the right shoulder built out the blue triangle.

This weekly chart for the Copper index shows its 2016 bearish rising wedge which had a hard initial breakdown, but failed to follow through. When you see a well defined chart pattern and the impulse move fails to deliver that is generally a sign there is more strength under the surface. Since 2018 the price action has been building out the black falling wedge which shows a breakout above the top rail last week on a nice increase in volume.

I mentioned at the beginning of this Weekend Report that gold generally leads commodities higher and then they can play catch up. Here you can see the large double bottom that formed at the bear market low in 1999 and 2001 which launched Copper on its bull market run following on the heals of gold. On the right hand side of the chart you can see where Copper bottomed in January of 2016, head of the H&S bottom, a month after gold bottomed in December of 2015. For the last several years Copper has built out the  bullish falling wedge right on top of the H&S neckline extension line.

A lot now hinges on the US dollar for the direction of the PM complex and commodities in general. If the H&S top on the US dollar plays out we could see a sharp move higher in Commodities. I have many more charts for commodities that I will post in the Wednesday Report. All the best…Rambus

 

 

 

 

Wednesday Report…Precious Metals Ratio Charts

I can remember there were times during the PM complex bull market before 2011 that sometimes the PM metals would rally but the PM stocks were very weak. Then there were times when the PM stock would rise while the PM metals moved very little. At the time of those occurrences it was bewildering as common sense suggested they should all move together and the stronger the metals moved so should the PM stocks. I don’t have a good answer for the bifurcation at times only that it can happen.

This first chart for tonight is the old ratio combo chart which has the Gold:XAU ratio on top with the XAU on the bottom. When the ratio is rising gold is outperforming the XAU. Going all the way back to 1996 you can see that gold outperformed the XAU in parabolic fashion until the top in January of 2016 which lasted about 20 years. When that 20 year parabolic arc gave way in early 2016 that broke the back of gold outperforming the XAU.

After the initial breakdown gold began to outperform the XAU once again forming the blue bear flag that took almost 3 full years to complete. The ratio broke down from that 3 year blue bear flag in early June of this year with the recent backtest to the underside of the bottom rail so all the work now looks complete. What this ratio chart is showing us is that we should now expect to see the XAU along with the other PM stock indexes  outperforming gold. After 20 years of underperforming gold it now looks like it’s the XAU and PM stocks turn to outperform gold in a big way. I’ve often wondered if we’ll ever see the ratio trade all the way down to its old horizontal trading range between 5.10 and 3.70 which lasted for most of the life of the ratio.

Next is the 7 year weekly chart which has the Gold:XAU ratio on top with the XAU on the bottom, same as the monthly chart above. This chart reminds me of the “Jaws of Life” chart for the INDU we followed for several years waiting for the breakout to finally happen. It’s been several years since I first posted this chart waiting patiently for the breaking out and backtesting process to complete which now looks to be finished as the ratio chart is making a new low this week vs the July low.

What I find is so intriguing about this ratio combo chart is the possible massive H&S top on the ratio and the equally massive H&S bottom on the XAU. Again, after 20 years of gold outperforming the XAU we should now see something similar for the XAU and the rest of the PM stocks as they work their way back to normal, where ever that ends up being, hopefully between 3.70 and 5.10.

Below is another old ratio combo chart we’ve been following for many years which has the HUI:Gold ratio on top with Gold on the bottom. Here again you can see how the HUI has underperformed gold in a big way going all the way back to the ratio high in December of 2003. Even though the HUI was in a bull market until 2011 you can see how it underperformed gold. Note the 2016 bullish falling wedge with the backtest completing in June of this year. The ratio hasn’t set the world on fire yet with its recent rise but the price action is starting to curl up while gold is still curling down which means the HUI is beginning to outperform gold in a modest way. What we want to see is the ratio chart on top performing like it did from the 2000 low to the 2003 high. Those were the days to be holding PM stocks.

Next is the 5 year weekly chart for the HUI:Gold ratio which shows the 2016 bullish falling wedge with the breakout and backtest looking complete. There is also that classic 18 month H&S bottom which formed at the last reversal point with the left shoulder and head forming inside the falling wedge and the right shoulder low forming on the backtest to the top rail. The next thing we need to see is for the ratio to make a new higher high above the September 3rd high.

I can still remember one of the most frustrating times toward the end of the bull market  was when SLV was going parabolic into its April 2011 high while the HUI / PM stocks in general barely moved. You can see the underperformance when you look at the vertical move down in the ratio from 2010 to 2011. In hindsight that was probably a very big clue that the end of the bull market was near. The ratio finally bottomed in late 2015 and has been moving up slowly but surely after breaking out and backtesting its 2016 bullish falling wedge. The ratio is getting very close to making a new higher high.

Almost everyone has noticed a big divergence with silver to the silver stocks over the last month or so. Yesterday I showed you the H&S bottom on SIL with the breakout. Today while Silver declined sharply the SIL backtested its neckline and held support.

This morning Sir Fully posted a couple of ratio charts, one that compared the SIL:SLV and the other one compared the SILJ:SLV. I don’t know if he noticed it but both ratio charts have formed pretty large H&S bottoms. Today the SIL:SLV ratio, silver stocks, touched the neckline while the SILJ:SLV ratio, junior silver stocks, actually broke out above its large H&S bottom neckline.

One thing we like to see in a strong bull market is for the PM stocks to outperform the metals which hasn’t been the case in a long time. All these charts tonight now show that the PM stocks are taking the lead which is a very healthy development. This is one of the major clues I’ve been waiting for to get back into the PM stocks. They have a lot of catching up to do so don’t be discouraged if the metals aren’t performing well because the PM stocks are going to outperform and hopefully in a big way if these ratio combo charts have anything to say about it. All the best…Rambus.

SIL:SLV ratio chart:

SILJ:SLV ratio chart:

Really Late Friday Night Chart…The History of the End of the World : Chart

Once a year I try to post this very long term monthly chart for the $COMPQ which I call, “HISTORY CHART OF THE END OF THE WORLD.” I built out this chart many years ago and update it when there is anything of interest to show. The last entry was the BREXIT vote in February of 2016. You my recall the markets were uneasy about the vote, but has been the case in the past it usually marks an important low.

If you look at this chart starting on the left hand side I’ve labeled all the important historical events that felt like the end of the world if you were trading in the markets then. There was one day during the 1987 crash that is still the biggest one day percentage decline in history where the markets were down around 23% or so. To put that into perspective if the INDU were to experienced a 23% one day correction now it would be down around 6400 points.

The COMPQ quickly recovered and rally into the September 1989 high which began another correction caused by the Saving and Loans crisis. If that was’t bad enough a year or so later began the start of the Gulf war which the markets shrugged off as not important. Those 3 history making events created the green bullish rising flag with a nice clean breakout and backtest. Less than 10 years later the COMPQ finally put in its bull market high. Just before the bull market high was established there was one more historical event which most have forgotten about, but at the time the markets were really rattled by the 1998 LTCM, Long Term Capital Management, debacle.

After the 2000 top was completed came the first real bear market since the 1970’s as shown by the green falling wedge. The percentage decline for the COMPQ was massive and it felt like the end of the world back then. Many thought another Great Depression was beginning the would last for years to come. Again, if that wasn’t bad enough came the start of the Iraq war at the bear market low. How could the markets ever rally with all this bad news? The markets did find a way to stabilize and found a way to rally higher into the 2007 housing and banking crises. At the November 2007 high began the infamous bear market decline that this time for sure was going to put the US in the next Great Depression.

As the INDU and the SPX began their great decline taking out their 2002 lows the COMPQ  on the other had declined far less because its 2000 to 2002 bear market was much more severe than the INDU and the SPX which produced a clear positive divergence for the tech stocks. Finally in March of 2009 the bear market that was going to last for many years came to an abrupt end and rallied strongly out of that 2009 bear market low creating the biggest bull market of all time that is still going on to this day with one consolidation pattern forming on top of the previous one. Note the 10 year blue triangle consolidation pattern which was needed to consolidate more than 20 years of the last secular bull market. You can also see the clean breakout and backtest to the top rail of that 10 year blue triangle consolidation pattern.That 10 year blue triangle is a halfway pattern between the two secular bull markets with the first one starting in the mid 1970’s and our current one that began at the 2009 low.

There is one last point I would like to make on this chart which I have absolutely no idea if it will play out. Note the center dashed mid line that runs though the center of the uptrend channel. For the most part the price action has traded in the lower channel below the dashed mid line. Back in 1995 the price action broke out above the center dashed midline for the first time which began the acceleration phase or parabolic run into the 2000 top. Looking at the current price action you can see the red consolation pattern that has been forming just below the center dashed mid line for over a year now. Is it possible we could see an acceleration phase to the top rail of the major uptrend channel before our current secular bull market runs it course?  That one year red trading range with the price action currently breaking out is strongly suggesting the center dashed mid line is going to give way. Have a great weekend and all the best…Rambus

PS: I’ve updated the portfolios on the sidebar this morning. The Kamikaze and the Gold Stocks portfolio are 100% in cash as of Thursday. I’m going to move the CURE trade back to the leverage portfolio where it needs to be as we raise some cash this week. Also you can see the history for each trade by scrolling down to the bottom which shows where the first entry point was made and the subsequent entry points that followed.

GLD Update…Bear Watch

A line chart can give you a different perspective vs a bar chart which is why I like to use them both to help uncover a potential pattern. Line charts can often times give you a quicker heads when a stock is breaking out.

Below is a weekly line chart for GLD which shows you why I’m so concerned about the PM complex right now. As you can see this weekly line chart shows a triple top with the breakout in progress. My biggest concern is that we could see some reverse symmetry to the downside as shown by the blue arrows. Many times how a stock goes up is how it may come down over that same area especially when the move was strong.

Note the tops at the 2016 high at reversal point #1 and the 2018 top at reversal point #3 in the 2016 triangle. After the initial breakout from the top in 2016 the price action backtested the top trendline which produced the right shoulder of a bigger H&S top and then came the strong impulse move down. Some of you may remember the 2018 top  when GLD was trying to breakout to a new high but could muster up enough energy to do so. I said if the bulls were in charge that it was time for them to step up to the plate but after 4 hits of the top rail the bears finally won the battle with another strong impulse move to the downside.

At a bare minimum we currently have a reversal pattern in place, triple top, that is reversing the last impulse move up. There is not a lot of support to slow down a move lower which is why we could possibly see a strong move to the downside, reverse symmetry.