Wednesday Report…Precious Metals Now What ?

I had a completely different post in mind for tonight, but the action in the PM complex has changed my mind. Since the US elections the PM complex has had a hard go of it trapping many bulls in their long positions. The magnitude of this decline especially in gold has been unrelenting in nature, which is how a bull trap is set. Just a short five weeks ago all looked good for this sector as it had one of the biggest rallies in history off the January low for the PM stocks. There wasn’t anything to suggest that five weeks ago the plunge was coming, but since then, there have been many clues that all was not right with the PM sector.

I’ve covered most of the reasons why I thought the PM complex would be having a hard time in many posts over the last five weeks or so. Tonight I would like to update some charts on why I think the bear market isn’t over yet and why I think there is more pain to come. This could all go out the window tomorrow, but for right now, these charts to follow shows some of the reasons why the PM complex may need to fall further.

First I would like to start by looking at the two hour chart for the UUP which broke out of a H&S consolidation pattern today during the last two hours of trading on heavy volume. I know there are many reasons why the US dollar can’t keep going up, but the H&S consolidation pattern has formed as a backtest to the top rail of the year and a half bull flag. Below is the two hour chart for the UUP.

This next chart for the UUP is a daily look which shows the last impulse move up and the year and a half black bull flag complete with a breakout gap. Note the almost one year H&S bottom that formed at the last reversal point before the breakout. The rally out of the mid summer 2014 low shows you what a strong impulse move looks like, as there is a series of one consolidation pattern forming on top of the next until the price action becomes exhausted and begins to correct that big move. When all is said and done the black bull flag should look like a halfway pattern forming between the first impulse leg up, and the impulse leg that started at the fourth reversal point in the black bull flag. We have a very clean line in the sand with the top rail of the bull flag, above is bullish, and below is bearish.

Below is a weekly chart which shows the bull flag with the 13 and 34 week crossovers for a simple buy and sell signal. Note the big breakout volume when the UUP gapped above the top rail of the bull flag. This is not a false breakout unless the UUP trades back below the top rail of the bull flag. Until that happens the breakout continues to evolve, and one should go with it instead of fighting against it.

This last chart for the UUP is another long term weekly look which shows the initial downtrend channel that formed between 2008 and 2014. Note the blue bull flag that formed just below the top rail of the black downtrend channel which gave the UUP the energy it needed to finally breakout and run to the high made in 2015, which began our recent consolidation pattern.

This next chart is a ratio chart which compares GLD to the UUP. When this ratio is falling GLD is weaker than the US dollar. The last time we looked at this chart the ratio had already broken down from the H&S top with a price objective down to the 4.16 area as a minimum downside move. The red arrows also shows you how I was expecting some possible reverse symmetry down.

This long term chart for the gold to the USD ratio chart shows the bull market uptrend channel and the bear market downtrend channel that has been building out since the 2011 high. Where that small H&S top that recently formed just below the top rail of the downtrend channel, was a big clue that gold was in trouble which is the same H&S pattern on the daily chart above.

This next ratio chart compares the XEU to the USD going back some 25 years. Keep in mind this is a long term monthly chart so things move at a snails pace. You can see the massive topping pattern that has led to the most recent lows. For almost two years now this ratio has built out an expanding triangle which I believe will end up being a halfway pattern to the downside. It took nearly seven months for the XEU to find support at the first reversal point in the blue expanding triangle. We could very well see a similar move down in this ratio once the price action breaks below the bottom rail.

This next chart is a weekly look at the DBC, commodities index, which shows you a good example of how the blue expanding triangle worked out as a halfway pattern to the downside.

This next ratio chart compares the XJY to the USD which is forming a massive H&S top. Note how the neckline symmetry line showed the high for the right shoulder.

This last ratio currency chart compares the $XSF to the USD. As you can see, this month the ratio is cracking the neckline. What all these long term currency ratio charts are suggesting is that the US dollar has a long ways to run to the upside. I know it goes against conventional wisdom but what is conventional wisdom? I’ll have many more charts in the Weekend Report to show you that I hope will paint a clear picture on what is actually taking place right now in the PM complex. All the best…Rambus

 

End of the World History Chart…

I try to show this long term monthly chart for the $COMPQ which I call the “End of the World History Chart” at least once a year or if something interesting takes place. When you look at the 1987 crash it felt like the end of the world at the time but that ended up being the second reversal point in the green bullish rising channel. How many remember the months leading up to the first Gulf war in 1991? No one knew at the time how that conflict would play out as the US was going up against the 5th largest army in the world. On the first night of bombing it was very clear that the conflict would be over quickly and the stock markets took off the very next day which made the fourth reversal point in the green bullish rising channel.

Which also helped put that fourth reversal point in the green bullish rising channel was the Savings and Loan crises which was dominating the headlines at that time. As you can see the COMPQ launched into one of the greatest bull markets of all time that ended nine years later when the tech bubble finally burned out.

How many remember the crash in 1998 that doesn’t look like anything on this chart but it was the LTCM, Long Term Capital Management debacle that felt like the end of the world at the time. It’s easy to look at a chart like this and see how important events in the world look in hindsight but when you are living and trading during one of these events it’s a totally different story.

After the $COMPQ topped out in 2000 it declined in a very strong move down building out the green bullish falling wedge which broke to the upside during the start of the Iraq war. The markets were crashing and the US was going to war. It doesn’t get much more negative than that but that was the low. I know most of you are familiar with the 2009 crash low which felt like the end of the world at the time but as you can see it launched a seven year bull market that is still making new all time highs.

The last chart pattern on the right hand side of the chart is the little red bull flag that just completed a backtest to the top rail last month and is now making new all time highs. The fourth reversal point on that little red bull flag was the BREXIT vote that tanked the markets which quickly reversed back up after just a couple of days.

The last point I would like to make with this chart is shown by the ten year blue triangle consolidation pattern. Note how clean the breakout and backtest was to the top rail which began the formation of the red bullish rising wedge. There are many individual stocks that made a similar consolidation pattern that have broken out and are well into new all time high territory. When looking at this big picture you can see how the blue ten year triangle consolidation pattern is forming as a possible halfway pattern which should show a similar move leading out of the triangle to the one leading into the triangle.

I’m viewing our current breakout and impulse move up, could take the price action up to the black dashed mid line before we see a decent correction. The move up could resemble the move up out of the red bullish rising wedge which would then show the red bull flag as a halfway pattern. The good news is this next impulse leg up is just getting started. As long as the game plan keeps play out this is how I see things unfolding over the coming years which will be punctuated with some strong corrections and maybe even a black swan event such as the 1987 crash which ended up being a great buying opportunity. I will have a ton of charts to post tomorrow that will shed some more light on the big picture which is the most important time frame to get right. If you know and understand the big trend it is so much easier to stay in the game.  There are times when one can trade against the dominate trend but it’s much more difficult to do, the trend is your friend.

Precious Metals Chartology …Just the Facts Man

This first precious metals combo chart is one I try to show you at least twice a week so you can follow the price action as it’s unfolding in real time. Except for SLV the other indexes have now traded below their respective neckline for five weeks now.  If you look at the sidebar you can see which sectors are doing the best and which ones are weakest. As you can see GLD has been by far the weakest of the four while SLV has been the strongest. To negate these H&S tops we would need to see the price action close back above the necklines. The necklines are your lines in the sand, above is bullish and below is negative.

This next combo chart is also one we’ve been following very closely which shows the multi year trading ranges which were broken to the upside earlier this year. Those big top rails should reverse their role from what had been resistance to now support which they’ve done so far.

Now lets look at the thin black dashed horizontal lines which represents support and resistance. During the strong bear market move back in 2013 you can see how they reversed their role to what had been initial support to resistance once the price action broke below those S&R lines. Looking at the right hand side of the chart you can see the same thing taking place since the August highs.

Following the price action is just that, following what the charts are showing us and not trying to second guess what we may think we want to see,, which is a lot harder than it seems. Note how the HUI and GLD are now testing their top rails from above. As long as those top rails hold support then all is good for the PM complex. On the other hand if we see those top rails broken to the downside then the PM complex will be talking to us from a bearish perspective regardless of all the reasons why the PM complex can’t go down.

Wednesday Report…The Jaws of Life : (The Most Hated Bull Market in History)

Tonight I would like to update the INDU we’ve been following which continues the upside move since the night of the US elections. Keep in mind some of these consolidation patterns began to form back in 2015 which had nothing to do with the US elections. It’s the billions upon billions of shares that were traded which produced this breakout move that is now being recognized for what it is. Even at this stage of the breakout move, there will be many doubters who will never recognize what is actually taking place. It can be very difficult to think outside of the box when we are bombarded everyday on how bad things are and how bad things are going to get. There has to be the proverbial wall of worry in order to have a bull market. Once the bull market becomes mature then the wall of worry comes down, and everyone is invited to invest in the markets, which will be at the blow off phase like in 2000.

I would like to start by looking at a daily chart for the INDU which I first showed you back in early November of this year, which was consolidating in an eight point bullish falling wedge. Just before that bullish falling wedge the INDU built out another small consolidation pattern which was a bullish expanding falling wedge. Note the breakout from the bullish expanding falling wedge which failed to rally very strongly before the INDU began to correct, and formed the eight point bullish falling wedge. Whenever you see a nice tight consolidation pattern fail to reach its price objective it tells you one of two things. First, the original pattern may be morphing into a bigger pattern. The other possible scenario is a second small well defined consolidation pattern that forms on top of the lower one, which can produce a rising wedge which is the case for the INDU.

The last time I posted this chart I suggested most would see this rising wedge as a bearish rising wedge, and the INDU would collapse into a bear market. Through the years I’ve shown you countless rising wedges that broke to the upside, which always suggest the move is very strong. A consolidation pattern that is slopping up in the same direction of the uptrend instead of against the trend, would be your typical bull flag.    Today the INDU finally broke out of the bullish rising wedge with a nice long bar. If we get a backtest to the top rail it would come in around the 19,250 area. One last note on this daily chart, which shows reversal points #2 and #4, on the bottom rail of the black bullish rising wedge, were the BREXIT and US Elections Shocker. Now ain’t that something !

I’m going to work backwards in time so you can see how this small bullish rising wedge fits into the big picture which is most important to understand from the intermediate to long term perspective. Below is a two year chart for the INDU which shows all the trading patterns which led to today’s breakout move.

This next chart for the INDU is a five year look which starts to paint the bigger picture. From the middle of 2015 to the middle of 2016 the INDU built out a nice big triangle consolidation pattern. The breakout and backtest to the top rail was the bullish expanding falling wedge we looked at on the first chart above, with the bullish falling wedge just above it. This is what an impulse move looks like starting at the January 2016 low.

This next chart is a long term weekly look which shows the H&S top that formed back in 2007 before the crash, and then the 2009 inverse H&S bottom which started the most hated bull market in history. Note how the current blue triangle consolidation pattern is starting to stick out like a sore thumb. The markets do one of three things. First, they are building out a reversal pattern, secondly a consolidation pattern, and thirdly they are in an impulse move between a reversal pattern or between consolidation patterns.

Below is a shorter term weekly chart which shows a simple trend following technique using just the 30 and 88 week moving averages. During the formation of our recent one year triangle consolidation pattern we did get a negative crossover, but that was negated when the 30 crossed back above the 88 week ma. Keep in mind I’m trying to trade the intermediate to the longer term horizon, which is where I feel most comfortable. Once the moving averages become properly aligned there is little to do but follow the price action. As you can see a buy signal was given way back in late 2009 and we didn’t get a sell signal until late 2015. There were several tricky areas when the price action traded below the moving averages for a short period of time but they never crossed to give a sell signal.

Here is a twenty year look at the monthly chart for the INDU which shows you the most hated bull markets in history. From a Chartology perspective it has to be one of the prettiest bull markets which is now rivaling the great bull market in gold from 2000 to 2011.

This next twenty year chart for the INDU is where I have for a long while  disagreed with just about everyone else. I’ve been showing this 13 year black expanding triangle, JAWS of LIFE, for several years now waiting patiently for all the work to be completed between the breaking out and backtesting phase. I can honestly say I finally feel vindicated after all these years watching this pattern which was being called the “Jaws of Death” develop and waiting for the INDU to make new all time highs above the blue triangle that formed as the backtest. Remember big patterns equals big moves.

This next chart for the INDU is a 75 year quarterly look which I don’t expect anyone in there right mind to believe except those that have their mind open. With that said the INDU is embarking on a multi year secular bull market that began in 2009. Note the beautiful H&S consolidation pattern that formed in the late 1960’s and 1970’s that finally broke out in 1982, with one last backtest to the neckline, which began the greatest bull market of all time. Now you can see how the Jaws of Life pattern fits into the very big picture. The 2009 crash low actually started our current secular bull market that will run for many years to come. It won’t come without any corrections, but the big trend is up after a nearly ten year consolidation pattern, Jaws of Life. Note how the top rail of the Jaws of Life has held support as the backtest and now the INDU is making new all time highs almost on a daily basis now.

This last chart for the INDU is a quarterly line chart which really brings things home, IMHO. As you can see there are four reversal points made within the Jaws of Life consolidation pattern. There was a nice clean breakout with an equally clean backtest to the top rail. I can guarantee you that you will not see the INDU presented in this fashion anywhere else on the planet. I have many more charts, in different areas of the markets that I’ll post in the Weekend Report that will give credence that the Jaws of Life is in fact the real deal, and the secular bull market that started in 2009 has a long time to run albeit, with some corrections along the way.

I know how hard it is for most folks to even imagine that the stock markets are in a  secular bull market, but just think back to the bottom in 2009. Could you have imagined the INDU would be pushing 20,000 in 2016? If the markets have taught me one thing through the years, that would be to keep an open mind above everything else. All the best…Rambus

HUI Update…To Catch a Falling Knife ?

I’ve been showing you this long term weekly chart for the HUI which shows the all important 2013 support and resistance line. As you can see it held resistance as shown by the black arrows pointing down. Then back in the spring the HUI broke out above the 2013 S&R line with a nice clean backtest which was a very bullish setup. Once broken to the upside the S&R line should reverse its role to support which it did until four weeks ago when the neckline gave way after the US elections.

Note the big long bar that formed during the breakout from the H&S top. That breakout move not only took out the neckline it also took out the 65 week ema, the 2013 support and resistance line and the top rail of the five point expanding triangle reversal pattern that reversed the bear market. Note how the top rail extension line from the expanding triangle and the 2013 S&R line have now been working as resistance over the last four weeks. Anything is possible in the markets, but when you see critical support being taken out like this you don’t have to be a hero and try to catch a falling knife so you can claim you called the bottom. JMHO.

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GLD Update…

Wednesdays trading in the GLD produced an interesting gap. I added the brown shaded support and resistance zone back in the summer months after it became apparent that GLD had broken out to the topside. The brown shaded S&R zone was tested several times from above and held just as one would have expected. After GLD topped out the price action began to decline into the fall where GLD then built out a bearish expanding rising wedge as a right shoulder that matched the left shoulders bullish expanding falling wedge.

Note the last bar that formed inside the bearish expanding rising wedge right shoulder which was the election spike. The next day the price action broke out below the bottom rail of the expanding rising wedge which was a negative development. The very next day GLD broke below the neckline which was another negative development. The very next day GLD traded down to the top of the brown shaded S&S zone and could only muster a very small rally that quickly petered out. Wednesday of this week GLD gapped below the brown shaded S&R zone with a little follow through today. It looks like Wednesday’s gap to the downside may be a continuation gap which suggests there is more downside to follow. The brown shaded S&R zone should now be a very good line in the sand, below is bearish and above is bullish.

gld-gap-day

The weekly chart for GLD for perspective.

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