Tonight I would like to start out by looking at the old ratio combo chart that has the GOLD:XAU ratio chart on top with the XAU on the bottom. I’m not going to go over all the details the ratio combo chart has, only to emphasize the 20 year 6 point parabolic arc which shows how gold had been outperforming the XAU until the small double top at 24.33 in late 2015. When the parabolic arc was broken to the downside in early 2016 that strongly suggested that it was going to be the XAU’s turn to outperform gold.

Initially, you can see the sharp vertical move down that broke the back of gold outperforming the XAU at 12.50. From the low in early 2016 the ratio had been building out the blue rising flag until the bottom rail was broken to the downside just 3 months ago in June. Since then the ratio has been in backtest mode to the bottom rail of the rising flag which looks like it could be coming to an end which shows up better on the weekly chart we’ll look at later.

As you can see I’ve labeled the blue rising flag as a halfway pattern that could very well lead to a vertical move lower similar to the one we seen off the double top at 24.33. If that ends up being the case then the XAU, on the bottom chart, will be a halfway pattern to the upside. The big question regarding the GOLD:XAU ratio is, will the old trading range between 3.70 and 5.10 come back into play at some point in the future? If that is the case then the  XAU and PM stocks in general have a lot of catching up to do and should outperform gold in a big way going forward.

Next is the weekly line combo chart for the GOLD:XAU ratio on top with the XAU on the bottom that focuses in on the shorter term look. As you can see the ratio chart on top has clearly broken the bottom rail of the blue rising flag and has been in backtest mode. The XAU on the bottom chart has clearly broken out of its 2016 bullish falling wedge inversely to the ratio chart.

Below is the exact same combo chart as the one above but I’ve changed the setting to show a bar chart instead of a line chart. It looks like 2 weeks ago the price action backtested the bottom rail of the rising flag which may now be complete. You may have also noticed the massive H&S top on the ratio chart and the H&S bottom on the XAU that are still in play. Unlike gold which has already broken out of its 6 year H&S base the XAU along with the rest of the PM stock indexes have yet to breakout of their massive H&S bases which really puts things into perspective IMHO.

It’s been awhile since we last looked at this long term monthly chart for the HUI which shows its entire history and all the Chartology. You may recall that when the price action was still trading inside of the 2016 bullish falling wedge I was looking for a possible touch of the bottom rail of the major bull market uptrend channel that would have been hit around the 120 area. The actual low for the 2016 bullish falling wedge was about 10 points higher at the 130 area for the 4th reversal point.

You’ve often seen me point out the 2008 crash in the PM complex. If you were trading back then you know exactly what I mean by crash. On the other hand there are new investors in the PM complex that never felt the pain of that crash event which is unfortunate as it was a good learning lesson. You can see what the crash looks like on this history chart for the HUI.

For me personally I was able to see the 2008 H&S top forming well before it broke down. There were very few leveraged etf’s back then in the PM complex so I ended up buying DUG which is a 2 X short oil etf and SMN which is a 2 X short the basic materials sector. I was able to sidestep that crash and actually did very well with just those two 2 X etf’s.

Below is what that 2007 – 2008 H&S top looked like at the time. It seemed pretty obvious to me what was building out but keep in mind that was at the height of the bull market that had been underway since 2001. Emotions were running high and nobody could remotely imagine the PM complex crashing. Even though I saw the H&S top building out I had no idea the crash would be as severe as it was, I only knew that a top of some degree was forming.

I was posting at the tent ( Goldtent) back then and this chart shows how I charted out the 2008 crash in real time.I took a lot of flack for daring to consider a bearish scenario . Outside of the H&S top being the dominate chart pattern the blue bearish falling wedge was the 2nd most dominate chart pattern. As you can see the volatility was incredible, something that new investors would have a hard time understanding as shown by the blue bearish falling wedge halfway pattern. Note the breakout below the bottom rail of the blue falling wedge with a nice clean backtest that lasted just two days which led to the final low 5 days later. Over the next 4 weeks or so the HUI formed a double bottom which officially ended the crash which led to the final rally into the 2011 top which you can see on the long term history chart above.

Since we are looking at old charts tonight here is one for the HUI that shows the bull market as one giant bearish rising wedge with the 2011 H&S top forming at the 4th reversal point. Note the massive breakout move below the neckline of the 2011 H&S top and the bottom rail of the bull market bearish rising wedge. That marked the second crash in 2013 which really set the tone for the bear market that followed. Whenever you see a long bar around an important breakout area that is a very good clue the breakout is going to stick. As you can see there was never a backtest to the bottom rail of the rising wedge which trapped most investors that didn’t get out in time.

This next chart for the HUI is one we haven’t looked at in a long time which shows some interesting price structure. I can’t quite remember when I first discovered the link with each bear market rally being right at 39% as shown by the blue shaded areas and blue arrows. This all started with the height of the right shoulder high off the 2011 neckline blue #1. From that point on each bear market rally was right around 39%.

The first failure came at the 2016 low when the HUI rallied above the double bottom trendline labeled, failure. Note how the price action showed lower lows and lower highs from the right shoulder high to the 2016 low. That is classic bear market action. After the 2016 high was in place and the first decline finished the HUI was back to its old habit of a 39% bear market rally at #6. The HUI then began its last important decline which ended a year and half later in September of 2018.

What still blows me away is the fact that the HUI rallied 39% off the September 2018 low to the high at 180 labeled #7 and began to decline once more. This time though the decline stopped at the old crash low at 150 and began to rally. Once the price action rallied above 180 that created a higher high something that hadn’t been done since the HUI rallied above the double bottom trendline in 2016. You can see our latest rally off the previous low at 150 is now the 2nd biggest rally since the 2016 rally phase. Our current rally is also the 2nd biggest since the bear market began at the head of the 2011 head and shoulder top. To put that into context we are now enjoying only the second biggest rally the HUI has had since the bear market began over 8 years ago to the month.

The bottom line is that whenever you see a H&S top or even a H&S bottom forming for that matter, don’t let your emotions get in the way of what the Chartology is suggesting. Emotions are the #1 reason why many investors lose money in the stock markets. Our new bull market in the PM complex is really just getting started that should last for many years. You are going to be faced with some real issues all the way which you are going to have to deal with. If you see a H&S top forming of some degree don’t let the herd sway you from what the Chartology is suggesting. All the best…Rambus

Last Thursday the price action tested the top rail of the April falling wedge and declined on Friday which told us the top rail was hot. Today the UWT gapped above the top rail which appears to be the breakout move. I’m going to take my second and last position and buy 400 shares at the market at 13.28 with the sell/stop just below the previous low at 9.98 for now which I’ll be raising shortly. This can be a very volatile eft so if you don’t want the leverage you can buy USO or UCO 2 X leverage.

This week PPLT is officially ending its bear market that began with the rest of the PM complex back in 2011. For the past year PPLT has been building out a 5 point bullish expanding rising wedge reversal pattern that completed with the breakout gap yesterday. A backtest to the top rail would come into play around the 89.25 area.

This weekly chart shows some classic Chartology with a nice long breakout bar last week through the top rail of the 2016 downtrend channel. This week you can see a nice breakout gap above the top rail of the now 5 point bullish expanding rising wedge reversal pattern.

This long term monthly chart shows the 2011 high and the bear market that ensured. Just like silver there is a good chance that PPLT could start outperforming the rest of the PM complex. We can now add Platinum to the list of good clues that the PM complex is truly in a long term bull market.

The most important part of investing is knowing if you are in a bull or bear market. It’s always much easier to trade in the direction of the main trend. There are times when a market is reversing from bull to bear or vise versa that there is not a lot of confirmation the turn has completed which leaves one apprehensive about getting fully invested. The more clues you can get that the major trend has reversed the more confident you can become to put your hard earned capital to work.

Over the last year or two we have been slowly gathering clues on the PM complex that is reversing from the 2011 bear market to the new bull market which has just started to takeoff. There are still many investors that can’t believe the 2011 bear market is over and are gun shy to put capital to work in the PM complex. This is perfectly understandable because the job of a bear market is to crush any optimism one may have had with the PM complex.

Tonight I would like to show you some super bases that will leave no question in your mind  that the PM complex has indeed reversed course from the 2011 bear market to a new and long term bull market that will have many years to run. I know you are tired of me saying, “big patterns lead to big moves.” but the charts to follow will show you exactly what I mean by that statement.

When looking for big bases or reversal patterns in the PM complex I like to use a quarterly line chart. Keep in mind we are looking for big patterns that are well over 5 years in the making that show up at major reversal points from bull to bear or bear to bull markets. When you find a big pattern like I’m going to show you then you can be pretty confident of what the major trend is and invest accordingly.

Lets start with the quarterly line chart for gold I first showed you back in 2017 when the price action bounced off the 2013 neckline failing to breakout. At the time we did have the possible H&S neckline building out but no confirmation the H&S bottom would eventually play out. What we did have in place were 2 left shoulders and a possible head with one right shoulder. Symmetry suggested before the H&S bottom would be completed that we would most likely see 2 right shoulders form. As you can see that was the case.

Also what a quarterly line chart can show us is reverse symmetry, how a stock goes up is often how it comes back down over the same area and visa versa. You can see this very clearly on this quarter line chart for gold. Also when looking at the quarterly line charts to follow take a quick look at the indicators for confirmation the major trend has reversed from down to up. I’m starting with the gold chart because it has been leading the rest of the PM complex higher and shows you what to expect with the rest of the PM complex when it becomes their turn to run higher.

Many PM investors are in awe of the run silver is having right now not knowing why. The reason silver is rallying so strongly right now is because it has just broken out of its massive H&S base that had 2 left shoulders and 2 right shoulders. There is no question that silver has been one of the laggards when it comes to the PM complex as shown by the downscoping neckline. Nevertheless its 2013 neckline has given way completing its massive H&S bottom. Again, look at how gold reversed symmetry up after breaking out from its H&S bottom. Silver is going to do the same thing and has already started.

Next is the quarterly line chart for the GDM, gold miners index, which has been around the second longest of all the PM stock indexes except for the XAU. Note the massive base which formed from the mid 1990’s to the early 2000’s which launched this PM stock index on its bull market run. As you can see it is now in the process of breaking out above its 2013 neckline. There appears to be some possible serious reverse symmetry just above the neckline.

Below is the quarterly line chart for the HUI which is still trading below its 2013 H&S neckline. There is no doubt that the HUI will follow suit and breakout from is super base. Again, note how the price action could very well reverse symmetry back up over the same area on the way down as shown by the blue arrows.

Next up is the XAU, gold and silver index, which is breaking out from its 2013 H&S neckline. Again, note the super base on the left hand side of the chart which launched this PM stock index on its bull market that ended in 2011. What’s interesting is that the XAU actually retraced 100% of its 2000 to 2011 bull market because this index is made up of some silver stocks which were very weak during the bear market years.

The GDX has only been around since 2006 but has still produced 2 super pattens, the 2011 H&S top and the current 2013 H&S bottom. The price action is currently trying to breakout from the 2013 H&S neckline.

The GDXJ, junior gold miners etf, has only been around for 10 years. When you compare this 2013 base to the GDX 2013 base you can see the juniors have been slightly underperforming the big cap PM stocks up to this point. At some point in the future we will see the juniors outperform the big caps in a big way once the speculative fever hits the PM complex.

This next stock, HGU.TO, Canadian gold miners etf, is setup a bit differently than the rest of the PM stock indexes we’ve looked at so far. It doesn’t have a lot of history but it does have enough to show a 3 year double bottom building out. A breakout above the double bottom trend line will complete the reversal pattern. To measure for a price objective just measure the distance of the double bottom and add it to the breakout of the double bottom trendline. Again, there could be some very nice reverse symmetry to the upside.

Yesterday we looked at a short term daily chart for the SIL, silver miners etf, which was breaking out from a bullish rising flag. I mentioned that SIL was probably the weakest sector within the PM complex but it could be getting ready to play some catch up. This quarterly line chart really drives home just how weak this index is vs the rest of the PM stock indexes.

What all these charts above are strongly suggesting is that the corner has been turned from bear market to bull market in regards to the PM complex. The indexes where the necklines are sloping up are showing more strength than the ones that are sloping down. Either way though a breakout above any of the necklines is a very bullish setup and lays the groundwork for many more years of bull market price action. Big patterns lead to big moves. All the best…Rambus

Yesterday we looked at PPLT, Platinum, which broke out from a small bullish falling wedge last week. I suggested it could be time for PPLT to start outperforming the rest of the PM complex for awhile as it has been a laggard. Today we got a massive gap to the upside on the daily chart.

It doesn’t show up on this weekly chart but the reason for the massive gap today is that the price action finally broke out above the top rail of its 2016 downtrend channel. So now platinum has joined the rest of the PM complex in its new bull market.

Below is the long term monthly chart showing the breakout above the top rail of the 2016 downtrend channel.

Tonight I would like to take an in-depth look at Sliver and show you the bottoming process that finally came to an end in late May of this year. There is no question that silver as been the laggard when it comes to the PM complex similar to what we saw back in the early 2000’s when gold led the way for the rest of the PM complex. Silver eventually caught fire and actually topped out in April of 2011 a full five months before gold and the PM stock indexes. If you’ve been trading silver for any length of time then you know when it moves it can make up lost ground in a hurry.

Since the early 2016 low SLV has been trying to bottom around the 13 area. Every time it would find support and rally higher SLV could never maintain its impulse move higher. Below is a one year daily chart for SLV which shows a small double bottom that formed late last year and after reaching the double bottom price objective at 15.00 the price action declined once again toward the bottom of the previous lows.

This time however SLV was able to find its low slightly above its 2018 double bottom low forming the blue bullish falling wedge. The blue bullish falling wedge ended up being part of a bigger reversal pattern the four month classic H&S bottom with the left shoulder and head forming inside the falling wedge and the right shoulder low forming on the neckline symmetry line. Note the big breakout gap above the neckline with no backtest. This is one of those cases that if you didn’t buy on the breakout and waited for the backtest you don’t get positioned.

This next chart for SLV is a slightly longer term daily chart which shows the fall 2018 double bottom with the late May of this years low which has created a bigger double bottom. Note the double bottom hump that came into play around the 15.20 area which initially found resistance when the price action rallied up to the previous multi 2018 lows as shown by the red arrows. Once the 2018 lows were broken to the downside that double bottom trendline would then reverse its role to resistance just like we saw at the double bottom hump. That’s classic Chartology.

Once this years H&S bottom was confirmed it strongly suggested that the double bottom hump at 15.20 would give way. As you can see the initial rally out of the H&S bottom slammed into the black dashed double bottom trendline and had a small selloff. That is what you would expect on the first hit. From a psychological perspective everyone that bought SLV above the double bottom hump were underwater at that point so those that wanted to get out had their shot. I have to say I’m a bit surprised  that it only took one hit and a backtest for SLV to breakout through such a powerful resistance line. We now have a strong line in the sand for SLV, above the double bottom trendline at 15.20 is bullish and below is bearish.

Now lets work our way further back in time and look at a 4 1/2 year weekly chart for SLV. As you already know the dominate chart pattern for the PM complex is the 2016 bullish falling wedge which is showing up on most of the PM stock indexes and most of the individual stocks. SLV is no different from the others just a bit slower in the breaking out process. Here you can see how the H&S bottom formed just below the top rail of the 2016 falling wedge which again strongly suggested the breakout would finally take place. Again, if you didn’t buy the breakout above the neckline and the top rail of the 2016 bullish falling wedge you didn’t get positioned as there wasn’t a backtest.

The other important feature on this weekly chart is the massive three year double bottom. The left side of the three year double bottom was actually a small double bottom. The decline from the August 2016 high formed the bullish falling wedge which finished up with a small double bottom, late last year which is part of a bigger double bottom with the head of the H&S reversal pattern being the second bottom. Note the strong volume that took place on the simultaneous breakout of the H&S neckline and the top rail of the 2016 bullish falling wedge.

This next long term weekly chart for SLV puts the three year double bottom in perspective. The double bottom hump comes into play around the 19.75 area. The price objective for the 3 year double H&S bottom would be up to the 28.75 area. I would expect we could see a small consolidation pattern form just below the double bottom trendline around the 19.25 area which would give SLV the energy it needs to reach the double bottom price objective.

The 2013 S&R line is the same line that is found on gold’s 2013 H&S bottom neckline. When drawing a trendline, in this case the 2013 S&R line, I always look for a minor low, minor high, or a gap on the left side of the chart in which to set the trendline. This 2013 S&R line actually starts at the breakaway gap that really put the bear market under pressure. If one didn’t heed the warning of that breakaway gap it has been a slow and painful ride to the bear market bottom.

This chart also shows you why I took my third position in USLV this week because of the breakout above the S&R line. Again we have a very clear line in the sand with the S&R line.

This next chart is a long term monthly chart for Silver which shows its 2011 bear market downtrend channel. Unlike gold and the PM stock indexes that have broken out above the top rail of their 2011 downtrend channel Silver is just now showing its breakout move on a nice increase in volume.

This last chart for tonight is one that I hold near and dear to my heart. This is the very first chart I ever posted publicly back in the old days at, Gold Eagle. Silver was just in the process of breaking out above neckline #1. Back then no one was looking at charts that were 40 or 50 years old. For me the symmetry was just to important to ignore, how silver came down was how it was going to go up. For those that don’t believe in big patterns leading to big moves I would like them to explain away the 25 year double H&S bottom.

Note the perfect breakout and backtest to neckline #1 before silver went on to breakout above neckline #2. I don’t know how many remember the 2008 crash in the PM complex but silver found support on the backtest to neckline #2 which led to the nearly vertical move to fifty. With the 2011 bear market downtrend channel now being broken to the upside is that downtrend channel going to be the handle of a massive cup and handle formation? As they say, we’ll know in the fullness of time. All the best…Rambus

Since I’ll be on the road tomorrow I need to get the Weekend Report posted today.

There has been a lot of discussion lately about some deflation coming into the big picture. In this Weekend Report I will show you what the Chartology is suggesting. I have literally 100’s of charts on commodities that I’ve been building over the last 15 years from short term to the very long term quarterly charts. Many of the long term charts should look familiar to our long term members as they played a key role in the last deflationary event back in mid 2014 to the first half of 2015.

Lets start with the most important commodity on the planet oil. Back in 2007 the WTIC formed an unassuming H&S bottom which ended up being the spark to launch oil on its parabolic run to 147 in just under a year. That parabolic move ended when the WTIC formed a large H&S top which is hard to see on this long term daily chart. The price objective was down to 33.61 which was hit dead on the money.

After that low was established in early 2009 oil began a countertrend rally which would last for a couple of years. The WTIC then began to form one of those very large and drawn out topping patterns that would take 5 years to complete. Similar to the 6 year H&S consolidation pattern that we’ve been following on gold, the WTIC touched it neckline on many occasions but just couldn’t break through. The big advantage of recognizing a large pattern like this early on is that you can prepare for the eventual breakout when it occurs which we did. Keep that big impulse leg down out of the unbalanced H&S top because most commodities experienced a similar fate back then.

Note the 2016 bearish rising flag that has completed the breaking out and backtesting process. At a minimum the WTIC should reach the 2016 low around the 25 area.

This second chart for WTIC is a long term 35 year quarterly chart which shows the 2014 – 2015 impulse move down. At the time we were looking for initial support to come into play in the brown shaded S&R zone which was hit. For awhile when oil spiked below the brown shaded S&R zone it looked like it could move to the bottom of the very large trading range but support was finally found and the counter trend rally began negating that possibility.

When I first posted this chart years ago I showed how the WTIC had traded in a large trading range between 10.50 and 40 for many years. I labeled that very large trading range as a double bottom. That massive double bottom had a price objective up to the 146 area as shown by percentage change indicator which was 277%.

Note the blue bullish rising wedge which formed just below that massive 20 year brown shaded S&R zone which was needed to help get oil over that long term resistance zone. The current blue bearish rising wedge could give the WTIC the energy it needs to break below the brown shaded S&R zone in the future as a halfway pattern.

Natural Gas produced its own massive H&S top which has led to a 10 year bear market since the neckline was broken. Just like oil on the chart above natural gas also formed two well defined brown shaded support and resistance zones. The 2014 – 2015 impulse leg down traded to the bottom of the upper S&R zone before the price action began to bounce. Since then the NATGAS has built out a very large blue bearish rising wedge which is showing some inverse price action in regards to the bullish falling wedge which formed in the second half of the 1990’s. Is it possible that NATGAS could trade down to the lower brown shaded S&R zone on this go around?

This next chart for Natural Gas is a monthly look which shows a little more detail than the quarterly chart we just looked at on the chart above. A move down to the 1.63 area will put natural gas at a 25 year low. No inflation here.

There is one more very long term chart I built out years ago which is the 75 year quarterly chart for the CRB index. It looks very similar to the long term quarterly chart we looked at earlier for the WTIC. What this long term quarterly chart shows are two distinct trading ranges. The lower one formed between the mid 1950’s to the early part of the 1970’s. Once the CRB index broke above the 1965 highs it was off to the races in a vertical move that finally came to and end about 2 years later in 1973. For the next 40 years or so the upper brown shaded S&R zone held strong support until the impulse move down from mid 2014 to the first half of 2015.

As you can see the price action has failed to rally back above the brown shaded S&R zone but instead has formed the blue bearish rising wedge just below the S&R zone. What is taking place is that the 40 year S&R zone held support for all those years but during the 2014 – 2015 decline that support zone was broken. Now it has reversed its role to resistance which is what you would expect. Since the multi year blue bearish rising wedge has broken down below its bottom rail is it possible we could see the lower brown shaded S&R zone come into play sometime in the future? I can tell you that if the blue bearish rising wedge plays out as a halfway pattern the price objective would be down into the middle of the lower brown shaded S&R zone. The Chartology is there now we just need to watch the price action and see if it plays out.

This last chart for the CRB index is a 20 year monthly chart which shows more details vs the quarterly chart above. Here you can see the H&S top that formed in 2011 with the strong impulse move to the downside once the neckline was broken. That impulse move ended in January of 2016 which led to the rise of the 2 1/2 year bearish rising wedge which has completed the breakout with a backtest in place. What we want to see next is for the price action to take out the previous low which will set up a new downtrend.

I know this is hard to digest as it means the benchmark commodity index the CRB looks likely to be back at levels last seen in the 1970s. Back to the Future ?

I’m just scratching the surface of all the charts I have for commodities and a possible deflationary event that could come to pass. I will be on the road for the next two days but when I get settled in I’ll have many more charts to post. Al the best…Rambus

One thing we like to see durning a bull market in the PM complex is for the GDX to outperform gold. Below is a weekly ratio chart which compares the GDX to gold. When the ratio is rising the GDX is outperforming gold. Since the breakout from the 2016 bullish falling wedge with the H&S bottom at the fourth reversal point the GDX has been strongly outperforming gold which is a bullish development.

An even better setup for the PM complex is when the small caps, GDXJ is outperforming the GDX big cap PM stocks. Below is a daily ratio charts which compares the GDXJ to the GDX that shows a H&S bottom which has reversed the underperformance of the GDXJ small caps to the GDX big caps which are now outperforming the big caps.

You know you are in a strong impulse move when a stock you buy doubles in 6 weeks. This is now the second stock in the PM portfolio that has doubled.  Below is the combo chart which has the JNUG on top with the GDXJ on the bottom.

Next is the combo chart which compares the NUGT to the GDX. NUGT still needs to tack on about 5 more points before we can see a double.

This last chart is the weekly combo chart for the US stock markets that shows another index joining the party today the MID, mid caps. This only leaves the Transportation Average, RUT and the IWC which are all hitting the top rail of their diamonds.

This weekend I would like to review the state two markets. The general stock market and the precious metals market.  Following this I will give an update on Plungers Core-7 portfolio.

Consider this report an opportunity to read an alternative view of the markets.  My views of the major averages are certainly at odds with consensus opinion. Furthermore, they are also at odds with the methodology of chartology.  A strict interpretation of the charts will not lead to the conclusions I present here.  I understand I am not in synch with the Rambus interpretation of the stock market, but he has been gracious enough to allow me to present it anyway.

The General Stock Market: Run!… Don’t walk away from this thing.

Identifying whether it is a bull or bear market is a more effective method to operate than focusing on individual stocks that may go up or down.  Most investors however, are mainly engaged in stock selection and spend little time in deep thought as to the state of the averages.  This directly relates to what I consider the most important thing in investing.  That is aligning oneself with the primary trend.

My method is to begin with first things first. The first thing is one must know the direction of the primary trend of the market.  It is my belief that all other things are secondary.  That would include stock selection and anything else that enters the equation.  It is my considered opinion that the general stock market began a bear market back on October 3, 2018 according to Dow Theory.  That of course means that the Primary Trend is now DOWN.  This may seem ridiculous to you since you have been inundated with bull talk and major averages going onto new highs.  How could anyone call that a bear market?

That’s what I am going to explain to you right now:

Let’s spend some time analyzing Plunger’s chart of of the averages below.  Please don’t gloss over this as it holds what I regard is the key to the market.

Dow Theory has been the only reliable method of forecasting the market over the past 120 years.  It is of no use to the market scalper as it acts as a weather barometer, not a precise timer. The chart above depicts what I interpret as a massive 2-year rolling top in the DOW/Transports.  The DOW traces out a massive H&S top followed by a head test of the top.  A head test is a phenomenon that often develops after a H&S traces itself out.  It is a last attempt to jam anyone cute enough to think he can short the market.  The NL in both charts is drawn with some artistic license as it serves as both a NL and a S&R line.

The bottom chart of the transportation index has traced out a more conventional H&S top.  The key Dow Theory principle that this chart highlights is that since the DOW has gone to new highs the transports have failed to confirm the move, therefore the Dow Theory sell signal triggered last December 14th remains in effect.  In other words…we are still in a bear market.

Let me repeat, despite the DOW going to new highs the transports have not confirmed.  Once a valid Dow Theory Bear Market Sell Signal is triggered the primary trend is down and in virtually all cases it does not reverse upward until the economic excesses which were incurred in this cycle have been purged or corrected for.

I encourage you to sit alone in a dark room sometime and contemplate what that could actually mean.  Bear markets virtually ALWAYS violate the highs of the previous bull market.  The high in 2007 came in about 14,200 which would require a 48% decline to reach today.  The NASDAQ would require a 65% decline to reach its 2007 bull market high.  Furthermore, for the DOW to reach a normal bear market valuation would require a 60% decline.  Finally, it is normal for a market which overextends its upside to similarly overshoot its statistical mean on the downside.  I am not trying to ruin your weekend, but one should know these salient stock market facts.

Market action since the December 24th low:

Previously I have covered in depth, the process the market underwent in 2018 to arrive at a bear market trigger.  The buyers capitulation in late 2017 can be interpreted as a Phase III blowoff.  In these episodes there is always an object of speculation…bitcoin fit the bill here.  It’s blowoff was chiefly a liquidity function.  Jan 2018 was a world wide synchronous top of all markets.  The US market then entered into a secondary reaction.  It found its bottom without triggering a Dow Theory sell signal.  It spent the next 6 months rallying to a new high, topping on Oct 3rd, 2018.

The FED Pivot

After the late fall mini crash the FED panicked and did a full reversal of policy. Markets have reacted with an epic 7 month rally.  This rally even exceeds the post 1929 crash rally of 1930.  It has been truly awe inspiring. However, once this rally initially peaked in early May it entered into its own secondary reaction which violated its previous rally correction low thus reaffirming the Bear Market sell signal given on December 14th, 2018. (see chart)  This is highly significant and serves as a major tell of the primary trend.

DOW at a new high… is it just an overshooting top?

So what is one to make of the new high in the DOW?  To me it has the appearance of a second buyers capitulation. Since early June the DOW simply went straight up.  It resembles that final 2 month burst in late 2017.  Buyers capitulated, they threw caution to the wind and no longer considered any risk.  It was their response to the FED now having their back…AGAIN.

But the non-confirmation of the transports is a glaring signal.  Until the transports can rally to a new high, on a closing basis, the primary trend remains in effect.  And that trend is down!  Keep in mind the Dow Theory tenant that the primary trend remains in force until proved otherwise.  The proof that the bear market signal is no longer valid comes if the transports close at a new high.

The Secret is contained in the averages

This is not a dogmatic position it is a safe approach born from a 120 year method that has a time tested track record.  The averages contain more intimate knowledge than the second guessing of a gullible public. The number one rule in investing is don’t lose money.  Now for those who would respond: Come on Plunger there has been a lot of money to be made on the long side since the Dow triggered a bear market sell signal.  You’re saying stay out of the market and leave it all on the table?

No, I am saying keep your investment capital out of the market.  If you want to play with speculative capital well then knock yourself out, but know that you are betting against the primary trend.  Good luck, you will need it.

Final word on the stock market; The FED is going to lower rates at the end of July.  Actually they will likely accelerate their drop over the next 6 months down to zero or close.  They can’t drop them enough to combat the next recession.  You can see this from the chart below:

You can see how much they dropped them in the last two recessions so they don’t have enough dry powder for the next one.  Instead, they are going to try to get ahead of the down turn and go to zero rapidly.  Then they will come up with the next hairbrained idea when the market wants more.  This should play well with gold… that is until it gets really ugly.  At that time we could have a deflationary impulse and it could hit gold hard along with everything else.  We can see this coming in the chart below:

The chart depicts the negative REAL interest rates that have existed over the past 10 years.  Call this bubble juice as it fed the bubble.  No coincidence that the crack in the market came when these lines crossed last year.  Think of the open space between the lines over 10 years as what kept the bubble levitated.  If inflation drops to zero the bubble could unravel.  This would likely pull down most asset classes except government bonds.  Until that happens, expect the party to continue in the gold market.

The Gold and Silver Market- Ka Boom!

Last week the gold and silver stocks went through a rare week of panic to the upside.  Over 40+ years of observing markets I have seen only a handful of upside explosions as the one we are seeing now.  Here is my reaction: I sit down at my desk and close the door to my office and block all interruptions. I scroll through my charts of the prominent gold and silver companies and see their upside explosions. Then project myself to the year 2030.  I look back to this moment and ask what did it all mean?

Here is what I see.  First the analogy of what occurred in the stock market from 1974-1982.  A case can be made that the great bull market of the past 45 years began at the bottom in November 1974.  On a nominal basis not accounting for inflation it did begin then.  That bottom was met with black pessimism.  Everyone was bearish.  The market then rose in a bull market but over the next 7 years one could say the stock market was in no-mans land.  That is, it was a period where it can be classified as the first leg of a bull market, but make no mistake it was a war zone from 75-82.

In August 1982 the market blasted off in a powerful vertical rise that left everyone on the sidelines in disbelief. The massive bull had been born.  But here is the thing, the rise did not come out of an atmosphere of black pessimism as was the 74 bottom.  Skepticism sure, but not pessimism.  This lack of pessimism is what actually kept the pros guessing and unable to buy the market. It was truly phenomenal as it was the launch of a 6 year massive bull market which actually morphed in a run which topped 16 years later in 2000.

This analogy applies to the present gold bull market I believe.  The beginning in January 2016 was indeed one of black pessimism.  Everyone was bearish, which explains why the initial rise was so violent, but after the 7 month rally ended in July 2016 the market entered no-mans land and you know how bloody it was, a war lasting 25 months.  The recent launch In gold since June has been like the 1982 launch in the stock market.  It did not come out of black pessimism, frustration yes, but not pessimism and it’s turning out to be powerful.

The primary trend in gold has been up since January 2016, but it was held back for over two years.  History shows us however, that the greater the consolidation and accumulation period within a bull market, the longer and higher the subsequent advance.  That is what I believe is behind this powerful advance.

A Review of Plunger’s Core-7

This past week I will call “the awakening”.  It felt like larger sized money began to wake up to the advance of gold and silver.    Big money now senses they have to at least dip their toe in the water.  That’s about all they can do since they can’t jump in the pool as it’s too small.  This action in the market is evident in Plunger’s Core-7.

Sandstorm

Big money wants in to FNV but it is pricey and they know it.  Sandstorm offers the same play at a discount price so the herd began to move into SAND this week.

What a beautiful chart!  One doesn’t need too much of an imagination to see where this thing is going.  Keep in mind that SAND doesn’t include in its reserves royalties that are uneconomic.  So when gold gets above say $1,500 its reserve base mushrooms.  The technical action during all of 2019 consisted of backtesting its breakout from the horizontal channel.  It has been building its energy for 3 years now…the launch has begun.

Daily- Explosive

OSISKO- OR

What most don’t know about Osisko is the discovery potential of the company.  Goldcorp will soon drill for new discoveries nearby existing royalties in the St James Bay Area.  Osisko requires patience, but pays a decent dividend and has explosive upside potential.

Daily:

WPM- Finally getting in the grove

Wheaton spent the bear market gorging on the misery of companies unable to get financing.  With its tax issues behind them they are now ready to reap the fortune.

Soon they could be breaking into new ground.

Daily:

Monthly- The monthly chart deserves a look.  Massive inverted H&S projecting a rise to $56

Kirkland Lake

Many would say, its had its run… time to get off, enough already.  Well one could take his cost basis off the table, but this stock is going much higher.  It is going to be a power broker.  It is going to start buying companies with all of that free cash flow… whose first?

Daily- on fire

First Majestic- AG

Checkout the weekly volume bar- explosive… money is coming into this stock.

Daily: WOW, violent upside panic buying.

Sprott Inc -SII.to

This was my dark horse when I originally bought it.  But I think one can easily see by the clean well formed chart action on the monthly that this stock is just beginning to unleash its power.  Just 3 months ago its debt free market cap was about $600M.  Some analysts forecast the top of cycle earnings in 6 years to be up to $1.5B.  Just think where the market would value that to.  It is why I say this stock has 15-20 bagger written all over it.

Daily:

Barrick -GOLD

Who would of thought the old debt soaked bureaucratic American Barrick would ever get into Plunger’s Core!  But if left alone, bear markets do their work and the bear breathed new life into this company.  It now has an entrepreneurial spirit in it and it owns 4 Tier one assets.  IMO these will be regarded as national treasures within a decade.  Institutional capital will power this stock higher.  We are seeing the beginning of that now.

Daily: Not bad action for a big cap.

So Plunger’s Core-7 is now hitting on all 7 cylinders.  I own all 7- in size, and I am holding.  The plan is to hold these stocks for the length of the bull market.  Let’s just see where that brings us.

A word of caution… If you are carrying a margin balance we are now at a time that violent short term corrections can strike at any time.  Your objective should be:  Be Right-Sit Tight.  Don’t get yourself blown out.
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Plunger is Resident Market Historian at Rambus Chartology

https://rambus1.com/