Wednesday Report…Is the Energy Rally Running out of Gas ?

Tonight I would like to update some charts for Natural Gas and oil which appear to be building out a topping formation. If these patterns play out there is a lot of room to the downside we can take advantage of. There has been a lot of backing and filling, but it looks like this may be coming to an end and we may finally get the impulse move down.

$NATGAS has been building out a 1 year H&S topping pattern and just recently completed the high for the right shoulder. This daily chart shows a blue 5 point bearish rising flag that broke below the bottom rail today. A backtest to the underside of the 5 point bearish rising flag would come in around the 3.18 area which would represent a low risk entry point to go short natural gas. The possible neckline is still quite a bit lower which would be another low risk entry point if the neckline gives way.

This next chart is a weekly look which shows a classic H&S top forming with the left shoulder and head building out inside the rising wedge, and the right shoulder forming on the backtest to the bottom rail of the rising wedge. Note how long the backtesting process took before it was finally completed. Most folks would have given up and moved on to something else, but sometimes having some patience can be rewarding. Patience would also have been required when the very symmetrical 2 year triple H&S top broke down and began consolidating the first leg down, building out the blue diamond. Each reversal $NATGAS has had since 2012 was accompanied by a H&S reversal pattern. As you can see, if our current H&S top plays out this move down is just getting started.

Lets now look at UNG, natural gas fund, that is the best proxy for either going short or long one of the etf’s for natural gas. This 1 1/2 year daily line chart shows the bearish rising wedge with the smaller blue bearish rising wedge which formed the backtest to the bottom rail. Even after the backtest was completed at 7.85 UNG still didn’t want to go down and traded sideways, creating a double top just below the bottom rail of the black rising wedge. Finally this week the price action is starting to fall breaking below the double top trendline at 7.30. The price objective at a minimum would be down to the first reversal point in the one year bearish rising wedge at the 5.75 area.

This longer term daily chart picks up the price action once the 8 point diamond consolidation pattern broke down. The smaller red consolidation patterns are what you want to see in a strong impulse move down, one forming just below the previous one. The move was so strong you can see a parabolic decline out of the blue diamond.

This weekly chart puts the big picture in perspective which shows the end of a very big rising channel with a H&S top that finally finished off the reversal pattern. The blue diamond is basically a halfway pattern that formed in the middle of that massive decline. At the top of the chart I listed 2 short efts, DGAZ which is a 3 X short etf and KOLD is a 2 X short etf for natural gas.

Now lets turn our attention to the $WTIC, oil index, which had a massive decline into the early 2016 low. Initially it looked like oil was going to build out an inverse H&S bottom, but as time went on the price action failed to move much higher than the neckline and began trading sideways. After nearly a year of sideways chopping action it looks like oil has built out a bearish rising wedge. There are several ways we can draw in the rising wedge, with the first one starting at the 2016 low. It’s not the prettiest rising wedge I’ve ever seen, but it does fit the bill as the backtest found resistance right where one would be looking, the underside of the bottom rail. There was a smaller bearish rising wedge which formed in 2015 which had a breakout followed by a backtest.

The 2nd way we can draw in a rising wedge is by starting the first reversal point, not at the bottom, but at the first reaction high. This rising wedge gives us 5 reversal points which we would need as the rising wedge is forming above the previous low. Note how the price action has interacted with the bottom rail of the one year black rising wedge. The initial backtest I was looking for was a little strong at 49.50. After petering out just above the bottom rail oil declined once again and broke below the bottom rail with another bactest to 50.26 which so far is holding.

This next chart for oil is a 35 year quarterly chart which shows the entire history going all the way back to 1983. For 20 years oil bounced between support at 10.50 and resistance at 40.00. Starting in 2000 oil built out a massive blue bullish rising wedge that when broken to the upside propelled oil up to its all time high at 147. Once the price action took out the old all time high at 40, I labeled the massive trading range from 10.50 to 40.00 as a double bottom which was 276%. I added that 276% to the breakout point above 40 and got a price objective up to 146.

We may be seeing a similar setup, only this time it will be to the downside if our current blue bearish rising wedge plays out as a halfway pattern. I have many more oil charts I could show you but it’s getting late and I need to get this posted. The bottom line is Natural gas and oil may have finally completed their one year plus trading ranges that may offer us a good opportunity go short. All the best…Rambus

 

$NATGAS & $GOLD Update…

It looks like natural gas is finally showing its hand. Below is a weekly chart for $NATGAS which has built out a H&S top with the horizontal thin black dashed line showing the high for the right shoulder which is taken from the high of the left shoulder. As this is an end of day chart today’s price action isn’t on this chart yet which is about 4% below last Thursday’s high.

Last week I showed you this potential H&S top forming on gold which was showing the horizontal thin dashed black line showing the high for the right shoulder around the 1265 area which is the same setup on the natural gas chart above.

Below is a daily chart for GLD which shows the left shoulder and head forming inside the rising wedge with the possible right shoulder forming on the backtest to the underside of the bottom rail of the rising wedge. The horizontal line taken from the top of the left shoulder is also in play in this area. To say this is a critically area for GLD is an understatement.

 

Wednesday Report : The Dollar’s Last Stand.

There is no doubt that the US dollar looks bad right now after breaking below the bottom rail of its 5 point falling wedge last week. Before I give up totally on the US dollar there is one thing I’m going to look for first. When all else fails I like to go back to the initial pattern which was a sideways trading range or a rectangle pattern. I’ve seen in the past that when you have a nice tight rectangle with a breakout above the top rail, there can be one very big shakeout move where the price action will decline back to the center mid dashed line, where final support may reside. If the dashed mid line fails to hold support then there are bigger problems. Below is a weekly chart for the US dollar which shows the price action testing the mid dashed center line.

The $US dollar daily line chart.

The daily chart below shows a potential downtrend channel with 2 blue consolidation patterns. If the blue bearish falling wedge is a halfway pattern to the downside the blue arrows shows a price objective down to the 96.20 area, which is labeled impulse move. The breakout to breakout price objective is a littler lower at 95.45. Those 2 price objectives come in pretty close to the mid dashed center line on the rectangle pattern above.

This weekly chart shows how the downtrend channel fits into the bigger horizontal trading range, which is now testing the dashed mid line. A break below the dashed mid line will most likely lead to a move down to the bottom of the rectangle.

The million dollar question remains, is the 2 year trading range a top or a consolidation pattern to the upside?

Below is a daily chart for the UUP which shows the original 5 point bearish falling wedge. I added a parallel bottom rail to the top rail which shows a possible bull flag if the bottom rail at the 24.85 area holds support.

This next chart for the UUP is the same chart as the one above, but this one shows the 2 smaller blue consolidation patterns that make up the downtrend channel up to this point.. If the lower blue bearish falling wedge is a halfway pattern between the blue bearish rising wedge, the blue arrows show a price objective down to the 24.87 area. Likewise, if the blue bearish falling wedge is a halfway pattern the BO to BO price objective is down to the 24.73 area.

This next chart is a daily look at the USDU, Dollar Index, which has a more balanced makeup of currencies. Monday the price action hit the bottom rail of the falling wedge completing the 5th reversal point. If the falling wedge is going to be a bullish falling wedge, the USDU will have to start rallying and breakout above the top rail. Note the 4 point rectangle consolidation pattern that formed on the left side of the chart. From a Chartology perspective the top rail area should hold support when backtested from above, as shown by the top rail extension line which is now being strongly backtested.

It’s been awhile since we last looked at this 40 year chart for the US dollar that shows a massive falling wedge with a breakout and 2 backtests to the top rail at 92 which is also the neckline extension line taken from the 2000 H&S top. From the 2011 low there still is a series of higher highs and higher lows in place. A break below 92 would change that.

Below is a combo chart which has gold on top and the US dollar on the bottom. Six weeks ago gold hit the top rail at the 1300 area and backed off telling us that the top rail is hot. If the US dollar on the bottom chart can’t hold the 96 area, then there is a very good chance that gold will breakout above the top rail, possibly signaling the bear market is over. To say the 1300 area on gold is important is an understatement.

This next chart is another combo chart which has the US dollar on top and gold on the bottom which shows the inverse correlation these two generally have. The last time we looked at this chart the US dollar was still trading inside the red falling wedge and gold was still trading inside the red rising wedge. The only change I made was on the US dollar chart where I made the bottom rail of its uptrend channel parallel to the top rail. Gold was already in a parallel downtrend channel.

Below is a weekly line combo chart which has the $XEU on top and the US dollar on the bottom. As you can see the XEU on top is showing the blue bullish rising wedge while the US dollar is showing the blue bearish falling wedge. I’ve extended the necklines from the previous H&S patterns, labeled neckline extension line, which can be a place to look for a reversal to occur. The backtest to the neckline extension line on the XEU would come in around the 113.10 area while the neckline extension line on the US dollar would come in around the 96.40 area. Again, the million dollar question remains, is the XEU building out a consolidation pattern to the downside, and is the US dollar building out a consolidation pattern to the upside? Whichever direction these 2 year trading ranges breakout will have a big impact on many markets.

This last chart for tonight is a ratio combo chart which has the US dollar to the XJY on top, and gold on the bottom. Keep in mind we’ve been following these major trend channels since late last year before gold hit its top rail at 1305 and declined, so up to this point they have been following the script to a tee. The big question is, will they continue to follow the script to a tee? As you can see the ratio chart on top is building out a blue falling wedge while gold has built out a blue rising wedge.

It’s not everyday that you find charts like this at a very critical juncture which can change the major trend in a big way. Up to this point nothing is broken yet in regards to the big picture, but that could change in a heartbeat.

The Dollar is now at the currency equivalent of The Little Big Horn. Stay tuned.

All the best…Rambus

 

 

 

 

Gold Update…Shaking The Tree

There is a pattern forming on gold which wasn’t there yesterday. With yesterday’s big move up and no follow through to the upside today there is a potential H&S top building out. Many times I will use a neckline symmetry line which is taken from the neckline and moved up to the top of the left shoulder to show the possible high for the right shoulder. There is another technique I use where I will use a horizontal line from the top of the left shoulder that can sometimes show the height for the right shoulder. Today’s high at 1265 matches the high for the left shoulder. I’ve been showing the possible neckline as a S&R line, but now after yesterday’s move it’s looking more like a possible neckline. The breakout will come into play around the 1220 area which will confirm the H&S top.

There is another technique I’ve shown you in the past that has to do with a wedge pattern. I’ve been showing you that gold has broken out of a bearish rising wedge with a breakout gap and a backtest today to the underside of the bottom rail. This technique I use shows how the left shoulder and head form inside the wedge and the backtest to the underside of the rising wedge forms the right shoulder. It ‘s still very early yet, but these two techniques show a strong possibility that gold may well be forming a H&S top.

Below is the PM combo chart which is showing yesterdays move may have been a strong backtest to the bottom rail of the triangle consolidation patterns as today’s price action closed below the bottom trendline. There were also several apex backtests which held resistance.

Yesterday I speculated on whether the gap opening was an exhaustion gap or a breakaway gap. With the price action trading back below the bottom rail of the triangle consolidation patterns it looks like we may have seen an exhaustion gap.

Based on that the possible exhaustion gap in play I’m going to jump back in and take an initial small position in the Kamikaze stocks. For most investors that’s almost an impossible thing to do, sell out one day and buy back in the next. Yesterday was called, shaking the bush day, to get the shorts to cover with what now looks like a strong backtest in place. Again this trade is not for everyone as the volatility is extreme in both directions. Only risk capital is used trading the Kamikaze stocks JNUG JDST DSLV and DGLD.

 

Oh Canada! A Cold Wind Blows from the Great White North

I am rushing this to you ahead of publication schedule as the message is both urgent and important.  The great risk to the world’s economic system is that of a credit contraction.  Western and Asian economies are ill equipped to absorb economic shocks as a result of their level of debt saturation.  No one knows where such a shock will come from, but we have postulated China or even Canada.  Recently Home Capital Group of Canada has suffered a full blown bank run and is in financial duress.  Is this significant?  Most would say no, however when we look at the charts of Canada’s biggest banks we see smoke billowing out.  Something is wrong here.

Gold Silver Ratio-Metalic Credit Spread

The gold silver ratio has recently triggered an early warning signal. It is indicating financial stress in the future, most likely coming in the fall of 2017.  By spiking and exceeding its trend high it is indicating credit troubles ahead.  Note the clear break out of its consolidation triangle and the 30 EMA.  Credit problems clear themselves in the fall and the GSR is indicating there is trouble ahead in the form of a credit contraction.

Note how the GSR provided an early warning of the market top in Oct 2007 and the credit crunch which started before that.  We will see that financial stocks began falling 7 months before the market peaked which is what the GSR was signaling.

Financials vs General Index- Divergence at the top.

Back in 2007 the banks stock index peaked 7 months before the general indexes.  This is what the GSR was indicating. We see it here in the below chart of the banks vs the SPX

Today we see that the bank stocks appear to have peaked 3 months ago and are putting in a divergence to the SPX.  Is this what the GSR today is forecasting?

Next we view what’s going on in Canada.  I am using Bank of Montreal as a proxy for the sector since it is the Blue Blood bank of Canada vs the TSX 60.  What we see here is a clear break from the index.  Is Canada blowing a cold wind of credit contraction our way?

Now let’s look at the major banks of Canada.  We will look first at the weekly chart then the daily.  Note how they all are pretty close to the same. They have all broken down and are transmitting a message in unison that there is something seriously wrong.  Talk about a bull trap, all these charts put in spectacular arching highs after they broke their preceding high print back in 2014.  These are all extraordinarily ugly tops with ensuing violent initial declines . Be sure to look at how the previous tops extended line (blue) interacts with the H&S tops that then developed.  The extended line acts as a neckline in most cases.  Let’s take a look.

The Bank Of Montreal

What a well formed H&S top with its NL placed right at the previous high.  This institution is the Blue Blood Bank of Canada.  This isn’t supposed to happen.  It had a nice double bottom and when it broke its previous high it should have kept going.  This chart shouts out there is trouble brewing beneath the surface.

The 30 EMA is now bending downward and has contained the price action on the way up.  Will it serve the same function on the way down?

The daily has ugly written all over it.  Check out that extended prior top line.  Price is currently flirting with the 150/200 EMA ping ponging up and down.  Note the volume churning action and OBV as well as Accum/Dist indicates heading for the exits.

Bank of Nova Scotia

This bank is also a very well healed institution.  Their is a lot of old family money in Nova Scotia.  A lot of resource financing comes from these people.  But this chart is also announcing something  wrong here.  Note the second top could only just peek above the previous high.  It has built out a clear H&S and has broken it and is in the BT phase underneath a declining 30 EMA of course.

The daily makes it clear that this chart is living on borrowed time.  It could only close above that prior peak for 4 closes before it gave up.  It’s been in BT mode below NL 2 for 14 trading days now..  The candles burning, how long do you think it can defy gravity?

Toronto Dominion Bank

Solid as a rock as they say.  That’s what one imagines when he thinks of TD Bank.  I opened my daughters brokerage account with TD Ameritrade because I view the bank as so solid.  But what we have here is another spectacular failure above the previous high.   This one actually uses the previous high as its neckline, not very original or I guess the ultimate S&R level.  No broadening top on this one just a violent crash down through support.  What’s this all mean?

OMG talk about borrowed time! This chart is simply painful to look at.  For anyone who doesn’t think that 50/200 EMAs are significant show them this chart.  See how those averages have contained price since we started down.  Now tucked up under the 200 EMA, how long until it gives it up?

Canadian Imperial Bank CIBC

Haven’t heard of them?  Where have you been?  CIBC was named the strongest bank in North America and the 3rd strongest bank in the world, by Bloomberg Markets magazine. So they are first stringers obviously, but the chart is saying somethings wrong here too.  Now well below its 200 EMA and all averages in decline mode.  Don’t miss those volume spikes.

150/200 EMA rollover:

So what’s the bottom line here?  I think the language of the market is telling us that a bear market has begun up there in the great white north.  The financial sector is sniffing it out.  When governments become so complacent that they kick out the beams of support from their bubble real estate market by slapping on a 15% foreigners tax these things can unravel quickly.   We got the early warning from the GSR and the financial stocks to these big powerful banks are separating themselves from the TSX index.  This appears to be no “mid-course” slow down this looks to be the real McCoy….er  real Mackenzie.

But there is good news.  The good Prime Minister Mr Trudeau has promised to ease your pain if real estate is collateral damage to any credit crunch by legalizing reefer madness by July.

 

UUPdate…

Below is a daily chart for the UUP which shows the price action testing the bottom rail of the falling wedge. There are 5 completed reversal points which technically, at the moment, makes the falling wedge a reversal pattern to the downside if the bottom rail gives way.

The weekly chart shows the backtest to the top rail of the nearly 2 year trading range which is critical support that needs to hold.

UUP long term weekly chart: