Wednesday Report…Gold : Ratio Charts Offer The Keys to the Bull.

Tonight I would like to update some ratio combo charts which may give us a sense of the bigger picture. Its like putting the pieces of a puzzle together where the small pieces don’t look like much by themselves but when they’re all added together it paints a clear picture. These ratio combo charts are just a piece of the puzzle that may add some clarity to some of the individual sectors.

Lets start with the TIP:TLT ratio chart in black with the TLT in red, which I use for the inflation/deflation debate. Most investors have their own individual stocks they like to look at in trying to answer the age old question, are we in an inflationary or deflationary cycle? When the ratio in black is rising it shows signs of inflation and when it’s falling deflation becomes possible.

On the left hand side of the chart you can see how the ratio in black topped out while the TLT was bottoming in 2011. Also at the bottom of the chart I have added the GDX and the CRB index with the 30 week ema which also topped out in 2011. Since the 2011 high the main trend has been down for the ratio chart in black which shows deflation. In July of 2016 both the ratio and the TLT topped out beginning a consolidation phase that would last for about 2 1/2 years with each forming a triangle consolidation pattern. In November of 2018 both broke out of their respective triangles signaling that we may see some deflation in our future. Again, at the bottom of the chart you can see the CRB index along with the GDX are currently trading below their 30 week ema which is not the end of the world but short term negative. The bottom line is that as long as the ratio in black keeps falling the odds favor a possible deflationary event maybe in the cards in the future.

This next ratio combo chart has the TLT:GLD ratio on top with GLD on the bottom. Remember correlations are never perfect but it is the general trend we want to focus in on.  When the ratio chart on top is rising it generally means GLD is falling. During the 2008 crash in GLD the ratio was topping while GLD was bottoming. Then in 2011 GLD was topping while the ratio was bottoming as shown by the red arrows. From that point in 2011 the ratio has been rising while GLD has been declining.

In June of 2018 the ratio broke out above the top rail of its 2016 falling wedge formation while GLD broke below the bottom rail of its 2016 triangle which was technically a sell signal for GLD. The thin black dashed arrow starting in 2011 shows the uptrend for the ratio and the downtrend for GLD. There is a bit of an aberration taking place currently where GLD is trading right on its 2011 downtrend line while the ratio is trading significantly above its 2011 uptrend line. It will be interesting to see how this divergent plays out in the coming weeks and months. Some of you may recall the 2016 bearish rising wedge on the ratio chart which led to that rally phase in GLD when the bottom rail was broken to the downside. That was one of our clues to get long the PM stocks back in January of 2016 which ended up being a short lived buy signal of only eight months, no big trend change.

This next chart is a combo chart which has the GDX on top with the $BPGDM on the bottom. Buy signals are given when the price action is above the 5 day sma and the 5 day sma is above the 8 day sma and just the opposite for a sell signal. The $BPGDM is currently on a sell signal. There is another way I like to use this combo chart and that is to look for either a positive or negative divergence between the GDX and the $BPGDM as shown by the red arrows. Note the negative divergence at the 2016 high for the GDX vs the $BPGDM which was another signal I used to help get me out of the PM stocks before too much damage was done.

It’s possible we could be seeing a positive divergence taking place between the GDX and the $BPGDM since the December 2016 low. As you can see the GDX has made a lower low vs the $BPGDM in September of 2018 as shown by the red arrows. If both the GDX and the $BPGDM touch their respective trendiness at the same time there will be more PM stocks on a point and figure buy signal vs the 2016 and 2018 lows while the GDX is making a lower low. This would support a bullish setup for the PM stocks.

This next ratio combo chart we’ve looked at fairly recently which has the GOLD:XAU ratio on top with the XAU on the bottom. After the 2016 rally phase on the XAU I was looking for the ratio chart on top to have a small countertrend rally into the brown shaded S&R zone to form a possible H&S top. At the same time it looked like the XAU could also form a H&S bottom. We got the countertrend rally and much more which negated the H&S top on the ratio and the potential H&S bottom on the XAU. Instead of building out a H&S top the ratio has been building out the blue rising flag formation which is not what the PM bulls want to see. That in turn is causing the XAU to decline in its 2016 falling wedge formation. The bottom line is that a break below the bottom rail on the ratio chart on top, would be very constructive for the XAU and PM stocks in general. Until then the better part of valor is to stay on the sidelines.

Below is a shorter term weekly combo chart for the combo ratio chart above which brings into focus the last six years or so of price action. Again, what we want to see is for the ratio chart on top to break below the bottom rail of its rising flag formation which in turn will cause the XAU to rally.

This next ratio chart compares GOLD to the SPX going back 50 years. When the ratio is falling GOLD is in a bear market vs the SPX and vise versa. As you can see the big trends can last a very long time before a reversal is seen. As long as the price action trades below the 200 week sma GOLD is in a bear market vs the SPX.

Below is just a 15 year weekly chart for the GOLD:SPX ratio along with its 200 week sma, which shows just one sell signal for gold vs the SPX in 2013. Earlier this year the ratio made it almost all the way up to the 200 week sma but turned down before breaking out. A breakout above the 200 week sma would be a very bullish development for gold and the PM complex in general.

I had a couple of more ratio charts I was going to show you tonight but for some reason I’ve been unable to download charts from Stock Charts as of about 10 minutes ago. These charts above show you what to look for in regards to seeing confirmation that a new bull market in PM complex is truly underway. All the best…Rambus

 

 

Late Friday Night Charts Update..What If the GDX…..

Before we look at the longer term weekly and monthly charts lets review the daily chart for the GDX we’ve been following which shows the rally from the September 2018 low to the February 2019 high. That five month rally looked promising but it failed to deliver a new impulse move higher to break the back of the bear market that has been in place since the 2011 high.

Below is the daily chart for the GDX that showed the potential to change the character of the bear market and set the tone for a new and strong impulse move out of the 2018 low. If you recall there was a lot of chopping action at the 2018 low which didn’t make a whole lot of sense in the beginning but as time passed by a reversal pattern began to show its self which turned out to be that seven point diamond reversal pattern. Since the price action had been declining into the 2018 low we need to see some type of an odd number of reversal points pattern buildout to reverse the downtrend. The reversal pattern we got was the seven point diamond.

After the breakout above the top rail of the seven point diamond the price action had a mediocre rally which topped out at the first reversal point in the blue rectangle, which turned out to be a halfway pattern to the upside. After chopping around for about three weeks the GDX broke out above the top rail of the blue rectangle halfway pattern which ended at the first reversal point in the blue five point triangle reversal pattern top. On the way to the February top the price action formed a small blue flag halfway pattern which measured almost exactly to the February high.

The Chartology still looked pretty good when the 5 point triangle began to buildout. This was a critical area to watch because if the new bull market was really going to take off we should see some type of consolidation pattern buildout and carry prices to a new rally high. The sideways chopping action began on February 20th at reversal point #1. All looked good until April 10th when the GDX failed to make it all the way up to the top rail at reversal point #5. It still was’t the end of the world but a warning flag went up. Many times the last rally during a 5 point reversal pattern will fail to reach the top rail which strongly suggests weakness and in this case it meant the bulls were running out of gas.

Once the price action broke below the bottom rail of the blue 5 point triangle reversal pattern the uptrend off the September 2018 low was officially over. What we ended up with out of the September 2018 low were two reversal patterns with two small considation patterns in between. A true impulse move failed to take hold which was another red flag that the new bull market for the GDX wasn’t ready yet for prime time.

Now we’ll look the exact same chart in which I will put a top and bottom trend line to define the September to February rally phase. What the price action now shows is the black expanding rising wedge which was most likely confirmed at the breakout and backtest point on the bottom rail. What we have is nothing more than a bear market rally in the secular bear market. For some folks it may be a hard pill to swallow but for others it can be an opportunity to play the downside. For those that maybe long the PM stocks they could put on a hedge to protect their losses. There is always a positive element if you know where to look.

Now that we are armed with new information about the September to February bear market rally, how does that fit into the bigger picture? As you know I’ve been looking at the 2016 trading range as a falling wedge formation for quite sometime. I’ve shown you recently how the top rail on the 2016 falling wedge for the HUI is failing to hold support which is not what you want to see if the pattern is valid. When you see a failure like that it  means you have to go back to the drawing board to find out why the pattern is failing. The bearish expanding rising wedge on the daily chart above gives us some very important information we can put on the longer term weekly chart.

Instead of starting my top trendline from the 2016 high I started it from the first reaction high at reversal point #2. From reversal point #2 you can still see that slow and painful chopping action to the downside ending at reversal point #3. The rally that began at the September 2018 low to the February high now gives us a very symmetrical parallel falling flag formation with the blue bearish expanding rising wedge being the 3rd and 4th reversal points. A touch of the bottom rail of the 2016 parallel falling flag at 16.75 will complete the fourth reversal point in what I think could be a halfway pattern to the downside. If that is the case the two plus year parallel falling flag halfway pattern will have a price objective down to the 13.85 area as shown by the blue arrows which shows the impulse measuring technique.

Note the difference between the 2016 impulse move up and our September to February rally phase. That strong impulse move in 2016 shows two small consolidation pattens which is common is strong impulse moves. The September to February rally looks nothing like the 2016 rally but more like a bear market rally inside of a trading range.

Now we need to put the daily and weekly patterns on the charts above on a long term monthly chart to see how they fit into the very big picture. Since the parallel falling flag is forming below the 2016 high it needs just four reversal points to be a consolidation pattern to the downside. As you can see the price objective for the falling flag is down to the 13.85 area which is just a point or so above the 2015 double bottom low.

This last chart is a, What If Chart, that is only speculation right now. I’ve added the two black trednlines which are parallel that could show the 2016 downtrend channel with the blue falling flag being the halfway pattern. We know that big patterns lead to big moves. What if the price action is going to build out a massive double bottom as shown by the red arrows? The Chartology is there for that to happen. It would be a fitting end to the 2011 bear market if we do get a massive double bottom to launch the next secular bull market. We now have the big picture to watch and as long as the price action keeps confirming the big picture it is what it is. Happy Mother’s Day tomorrow and all the best…Rambus

 

Late Friday Night Charts…Big Picture Gold Stocks

I was going through some old long term charts I haven’t posted in many years to see if there was anything of interest to post tonight. With long term charts things don’t change very fast and the big picture can stay viable for years. I have literally hundreds of charts for the different PM stock indexes that I’ve built through the years that are tucked away in different chart lists that I don’t check very often. It’s always interesting to go through some of those old chart lists, especially with the longer term charts, to see what I was thinking years ago and how relative that big picture looks today.

This first chart is a 12 year weekly chart for the XAU which begins with the 2007 small H&S top that led to the crash in 2008. When I first began to post that potential H&S top nobody and I mean nobody wanted to hear about it. The PM complex had been in a raging bull market up to that time so how could there be a H&S top reversal pattern forming. That 2007 H&S top produced the biggest and most vertical decline in the history of the XAU which caught most PM investors off guard. Luckily for those investors that held on during that massive decline, which would have been near impossible, were treated to a reverse symmetry rally back up over the same area on the way down. That 2008 crash low rally produced marginally new highs which turned out to be a massive H&S top which ended the bull market.

I still remember when the 2011 H&S top completed, the impulse move down from the right shoulder high caused panic in the streets and talk of how the PM complex was being manipulated and how unfair it was. My take was totally different as I could see the Chartology that had built out and the most obvious outcome was a collapse in prices as the price action was breaking down form a massive H&S top which was a perfect setup that ended the bull market and ushered in the new bear market. There was no way to know back in 2011 when the head portion was building out that the new bear market would last as long as it has.

Some folks say the bear market ended in January of 2016 for the PM stocks which technically could still be true but the pain and suffering by the precious metals investors up to this point has been much greater than most would have ever imagined eight years or so ago. When you look at this long term chart below there has only been about a seven month rally in 2016 that gave the PM investors any hope at all the the bear market may be over and a new bull market was beginning. In a few months from now it’s going to be a three full years since the top in August of 2016 was completed. The most recent rally that began in September of last years was not an impulse move to the upside but just a counter trend rally within a consolidation pattern.

What is also striking on this 12 year chart for the XAU is that the current price action is  now approaching the 2008 crash low again around the 62 area. As you can see the 2008 crash low was tested again in 2015 when the XAU built out a small consolidation pattern right on the 2008 crash low trendline. Then came the low for the bear market in January of 2016 which produced the biggest rally of the 2011 bear market. The third touch of the 2008 crash low happened last year in September. As I mentioned earlier the price action is within striking distance of the 2008 crash low for the fourth time as shown by the blue arrow.

Today the XAU closed the week at 68.79 a mere seven points or so off the 2008 crash low. The reality is the PM complex has been one of the toughest areas to trade and make any real profits in the last eight years or so. I was able to catch maybe half of the 2016 rally for a small profit before I sold out and went to cash after I seen a small H&S top building out. Our current rally phase that began in September of last year I was able to catch several months of that rally before exiting all my PM stocks on April first and second for a modest loss. If one doesn’t get in at the absolute low and get out at the very top in these countertrend rallies within a bear market it’s very hard to lock in any meaningful profits. I know there are many PM stock investors that are still hoping the current downtrend is going to reverse pretty soon to relive the pressure that is growing with each passing day. I’ve been down that road and I didn’t like it one bit as hope becomes your best friend and you become trapped with no way out especially if you didn’t get in at the absolute bottom.

This last chart for tonight is a 25 year monthly line chart for the XAU which shows the 2000  to the 2011 bull market as one big bearish rising wedge. The bottom rail of that bearish rising wedge was broken to the downside during the 2013 hard decline. As you can see when the price action bottomed in January of 2016 the XAU retraced 100% of its bull market. After the 2016 rally phase was over and the correction began the price action has built out a two year unbalanced H&S top with a backtest to the neckline in February of this year. Keep in mind this is a monthly line chart so chart patterns can look a bit different but can still be valid. The bottom line is that if the XAU can trade back above its unbalanced H&S neckline that will negate the H&S top but until that happens the Chartology is suggesting lower prices to come. Above the neckline is bullish and below is bearish.

Have a great weekend and all the best…Rambus

Markets Update…

When I sold all my precious metals stocks and went to cash back on April 1st and 2nd I mentioned there were two things I was seeing that I didn’t like. The first thing I mentioned was that there were some failing triangles and rising wedges on the shorter term daily charts. The second thing I didn’t like was that many of the PM stocks were failing at the top rail of their 2016 falling wedges or flags. Those were warning signs for me. At this moment I’m neither bullish or bearish the PM complex but neutral. I see some PM stocks holding up rather well while others are declining and breaking important short term support, a mixed bag.

AU was one of the leaders but broke down below its neckline last week and completed a backtest.

AU monthly looking for support possibly at the 12 month ma?

This daily chart for AGI.TO shows the rising wedge which I was expecting to breakout topside if the impulse move was strong but it failed to deliver and broken through the bottom rail completing a bearish rising wedge. The price action has now morphed into a H&S top with the neckline getting backtested today.

This monthly chart shows the 2016 expanding falling wedge is still in play but we need to see the top rail broken to the upside to really get excited.

The last time I posted this chart I asked the question, would the real H&S pattern please standup?

This monthly chart shows a very important price point that ASM is now trading at which is a low risk entry point if anyone is brave enough to take a chance.

BTG H&S top.

The monthly chart for BTO.TO hit the top rail of its trading range but failed to breakout. This is one stock I’ll be interested in when the top rail gives way.

This daily chart for the EDR.TO built out a beautiful rising wedge and all it had to do was breakout above the top rail but it broke down instead which is not what I wanted to see.  Now it has morphed into a small H&S top. Maybe the old neckline can offer some support.

FR.TO builtout a very nice triangle right on the neckline which should have been a bullish setup. There was a false breakout above the top rail but it ended up being bull trap. Now it’s trading below the neckline.

The top rail of its 2016 falling wedge is still holding support at this time but the failure of the neckline to hold support on the backtest is troubling.

AGB.V is another one I’m keeping a close eye on if it can takeout the top rail of its black expanding rising wedge.

PAAS has one ugly daily chart. After breaking down from the 4 point triangle consolidation  pattern the price action has formed a H&S top as the backtest to the bottom rail.

I had high hopes for XGD.TO when it broke out above its S&R line, formed the blue triangle on top and then had a failed breakout of the blue triangle, another bull trap. It’s currently sitting on the original S&R line which needs to hold support.

Changing it up a bit. Today the $XBD, broker and dealer index broke out of its 2018 October H&S bottom to joining the banks.

Below is a daily chart for the $BKX, bank index.

Below is a daily chart for the XLF, financial sector which built out a small bullish rising wedge as the backtest to the neckline. This is what I was looking for on many of the PM stocks I was following but they failed to deliver. You may note the the H&S bottoms on both the PM stocks and the US stock markets look very similar.

 

UUP & HUI Combo Chart…Now is Not the Time to be Complacent

On Tuesday of this week I posted this combo chart showing the possible small blue flag forming on the UUP ( US Dollar). This morning the price action gapped above the top rail and is now approaching the top rail of the rising wedge formation. The sixth reversal point will be completed when the top rail is hit. This is where it’s getting interesting. Many investors believe the US dollar is going to go down or collapse which could be the case. On the other hand what if the US dollar breaks out above the top rail of its August rising wedge?

Looking at the HUI on the lower chart doesn’t give me a warm and fuzzing feeling right now. It’s not the prettiest topping pattern I’ve ever seen if indeed that is the case, but the price action over the last two days has broken the bottom rail of the uptrend channel and what I’m calling a S&R line. If you look at the price action above the S&R line you can see a double top with a left and right shoulder but no place to actually label a neckline thus the S&R line.

In regards to a support and resistance line, above is bullish and below is bearish. How the price action interacts with the top rail on the UUP chart is going to give us a major clue on what to expect next for the PM complex. If the top rail holds resistance then the PM complex should find support but if the UUP breaks out above the top rail of the August 2018 rising wedge then the PM complex will have a strong headwind to deal with. Now is not the time to be complacent.