Weekend Report…Beware The Bearish Rising Wedge

In this Weekend Report I would like to show you a chart pattern that seems to be showing up in a lot of different area’s of the markets, in particular the commodities complex. We looked at some of them in the last Weekend Report which were maturing, but in some cases hadn’t broken down yet. The chart pattern I’m referring to is the bearish rising wedge.

Some of the bearish rising wedges have a common theme which is the late 2015 low, when commodities and the PM complex finally bottomed out after that massive impulse move down. At a minimum the price objective for a rising or falling wedge is the first reversal point in which the wedge began to build out. Prices can go much lower, but the first reversal point is a good first price objective.

Lets start with some commodities indexes to see what last weeks price action did to this one plus year consolidation pattern. The CRB index has been around longer than most and gives us a good general feel on how commodities are doing in general. Last Tuesday the price action broke below the bottom rail of its bearish rising wedge and continued to fall for the rest of the week. The big clue that the CRB index was in trouble was when the small H&S top at reversal point #4 gave way. You can see there was a quick bactest to the underside of the neckline at 191.50 which led to the test of the bottom rail of the big bearish rising wedge. The price action bounced off of the bottom rail for three days before breaking below that very important rail on Tuesday of last week. It’s still possible we could see a backtest to the bottom rail at the 189 area before prices break lower.

Below is a long term daily chart for the CRB index which shows how the bearish rising wedge fits into the big picture. That massive impulse leg down that began in 2014 took almost 2 years to complete and produced a parabolic downtrend. Since the minimum price objective is down to the first reversal point at the 2016 low it’s possible we could see a double bottom build out at the 150 area as one scenario.

This last chart for the CRB index is the 75 year quarterly chart that I built in 2015 which is still relevant. After breaking below the upper brown shaded S&R zone the price action has rallied back up to the top of the brown shaded S&R zone, but has failed to go any higher and is on the verge of breaking back below again. Note the double bottom that formed in 2000 which led to a massive leg higher. This is one chart I’ll be watching very closely.

Next is the DBC commodities index which is probably the most actively traded of all the different commodities indexes. As you can see it is setup just like the CRB index. Note the blue triangle that formed in the middle which at the time looked like it could be a consolidation pattern to the upside, which even had a breakout gap. After the price action failed to move much higher that was a clue that the blue triangle might not be what it looked like. Again, the big clue that it might be failing was at the 4th reversal point in the bearish rising wedge. As you can see last week the DBC broke below the bottom rail of the rising wedge and the top rail of the blue triangle, which should have acted as support.

This weekly chart for the DBC shows the original H&S bottom which looked like it would work as a reversal pattern reversing the massive impulse leg down. The symmetry was very good originally as shown by the neckline symmetry line, which showed the low for the left and right shoulders. Again, after breaking out above the neckline prices failed to move much higher, but nothing was actually broken yet. As you can see last weeks bar broke below the neckline and the bottom rail of the bearish rising wedge. I can now say we have a bearish rising wedge because the price action has broken below the bottom rail and not above the top rail.

Next lets look at the energy sector which is showing a similar setup to the commodities indexes above. Last weekend we looked at the $WTIC oil index, which was testing the neckline of its small H&S top at reversal point number 4 in its bearish rising wedge. Unlike the commodities indexes we looked at above, WTIC landed on the bottom rail of its rising wedge on Friday and has not clearly broken below it yet. There is still the possibility that we could see a backtest to the neckline before prices break lower at the 52.75 area, but no guarantee.

This next chart shows the massive H&S top which we followed for several years before it finally broke down. As I’ve mentioned in the past, recognizing big patterns like this can be a double edged sword. You can see the big pattern building out, but you don’t know when the actual breakout is going to occur. Patience is required to wait for the actual breakout. The thin red line in the blue rising wedge at the bottom of the chart shows how the massive H&S top on the long term look could very well be a fractal on the short term daily chart, at the 4th reversal point in the rising wedge. Both H&S tops produced unbalanced patterns with more right shoulders forming than left shoulders.

Lets take a look at natural gas as it actually broke below the bottom rail of its bearish rising wedge two weeks ago, ahead of the commodities indexes and oil. The breakout was accompanied by a very large breakout gap on heavy volume, which is what one likes to see when an important trendline gives way. Last Friday the price action backtested the neckline at the 7.35 area which is normal. Now we need to see the bottom rail hold resistance going forward.

This weekly chart shows the big breakout gap and the backtest last Friday. Note how the 30 week ema does a good job of defining the trend, but lets you know when you’re in a consolidation phase when the price action trades above it or below it. You can see how well the breakout and backtesting process worked on the two patterns above the black bearish rising wedge.

Lets look at one last stock for the energy sector which is the XLE. Like all the bearish rising wedges we looked at above this one to began to build out in early 2016. I had high hopes for this index and even went long at one point, when the price action broke out above the top rail of the 10 point bullish rising flag late last year. Ten reversal points in a pattern doesn’t happen all that often, but when they do it usually leads to a good move. Again, like all the patterns we looked at above the XLE produced a breakout which failed to take prices much higher before turning down. The last time we looked at this chart the XLE was in backtest mode to the bottom rail of the black bearish rising wedge, the top rail of the 10 point flag, and the top rail of the downtrend channel. We can also add the 20 and 50 day ema’s for good measure.

Next I would like to show you a couple of bond charts which also shows a bearish rising wedge in play, but on a longer term time frame. Below is a 15 year monthly chart for the TLT which broke below the bottom rail of its bearish rising wedge 4 1/2 months ago. As this rising wedge formed in the uptrend it needed 5 reversal points to become a reversal pattern, unlike a consolidation pattern which needs an even number of reversal points as shown by the two blue lower patterns.

This next chart is a 45 year quarterly chart for the $USB, 30 year bond chart, which shows a multi year blue bearish rising wedge which is the reversal pattern that is reversing the 35 year bull market uptrend channel. I believe the price action above the top rail of the 35 year uptrend channel was a bull trap sucking in the very last of the bond investors before moving lower.

The bearish rising wedge on the weekly chart.

Now I would like to show you some bearish rising wedges in the precious metals sector starting with gold. I know most of you don’t want to believe that gold could still be in a bear market and that’s OK. For me personally this daily chart for gold shows the black bearish rising wedge that started to build out in late 2015, which corresponds to many of the rising wedges we looked at above, and shows its leading the way lower. This bearish rising wedge broke below the bottom rail back in October of last year much earlier than the rest of the rising wedges we looked at. Also note the smaller blue bearish rising wedge which broke below the bottom rail a week or so ago and is now trading back below all the important daily moving averages.

Below is a ratio chart which compares gold to the CRB index that shows how much weaker gold is to the CRB index. This ratio built out a 5 point triangle reversal pattern that reversed the rally out of the 2014 low. Last week it looks like the backtest to the underside of the bottom rail of the black triangle reversal pattern may have completed. When this ratio is falling, gold is under performing the CRB index.

Below is a daily chart for SLV which shows a bearish rising wedge that broke below the bottom rail 8 days ago and began moving lower after a quick backtest to the bottom rail.

Below is a weekly chart for SLV which doesn’t show a bearish rising wedge, but it does show the backtest to the neckline which occurred 2 weeks ago about the same time as the bearish rising wedge was breaking down. Two bearish patterns back to back.

This next long term weekly chart for SLV doesn’t show a bearish rising wedge, but the bear market downtrend channel and the 6 point diamond consolidation pattern that is building out. The diamond won’t be complete until the bottom rail is broken to the downside.

The HUI has broken out of a much smaller bearish rising wedge back in early February.

GDX bearish rising wedge.

GDXJ is finding some initial support on the center dashed mid line.

The precious metals stocks have taken it on the chin since the high on February 8th and need to start building out some type of consolidation pattern to relieve the oversold condition. If the bulls are in charge they need to build out a reversal pattern reversing the decline out of the February high. If the bears are in charge we should see a consolidation pattern of some kind form. As it stands right now the bulls are on the ropes and need to step up to the plate and do what they do in a bull market, make higher highs and higher lows. All the best…Rambus

 

Weekend Report…The Chartology of the Commodities : The Inflation/ Deflation Barometer

One of the biggest questions investors have is what type of environment are stocks and the economy in, deflation or inflation? Knowing the answer to that question can give you a heads up on what different sectors to invest in and what sectors to stay away from. Tonight I would like to update some of the different commodities indexes to see if they can give us any clues on which way the deflationary or inflationary pendulum is swinging.  Commodities are often an under analysed asset class as compared to Stocks and Bonds. However they are the nuts and bolts , the real stuff  supporting human existence.

Lets start with one of the oldest commodities indexes around the $CRB index. After the huge impulse move down that began in the middle of 2014, the CRB index finally bottomed in early 2016, putting in a small double bottom which was going to be part of a bigger inverse H&S bottom. After breaking out above NL1 the CRB index then rallied higher stalling out below the 2016 high and began to decline once more. That decline found support at the neckline symmetry line which was a good place to look for a low for the right shoulder of a much bigger double H&S bottom. After trading below NL2 for six months the price action finally broke above it with just a small rally.

From a Chartology perspective nothing is broken yet on the double H&S bottom, but the price action has been very laborious since the December low of last year. Again, nothing is broken, but I see a yellow flag waving that is signaling caution in regards to the double H&S bottom, which we’ll look at in more detail on the next chart to follow this one.

Whenever a breakout becomes very laborious it can be a sign of a failing pattern, not always, but sometimes, so it’s important to pay close attention. This second chart shows the price action from the 2016 low with a possible ascending triangle building out. Note the price action at reversal point #4 in which the CRB index went nowhere since December. Last week the price action broke below the black dashed trendline and found support on the bottom rail of the black triangle last Friday and got a bounce. Now we have a support line at 188.79 with a resistance line just above at 191.50 which is the the black dashed S&R line or NL of a small H&S top. The price is converging into a very tight range which will show us which way the CRB index wants to go depending on  which direction the breakout occurs.

This next daily chart for the CRB index goes back almost 5 years and shows the parabolic downtrend we followed during the last deflationary decline that began in the middle of 2014. Taking a step back and looking at the bigger picture the 2016 triangle looks more convincing than the H&S bottom we looked at previously. If the triangle breaks out  topside it will be a reversal pattern because it has 5 reversal points. On the other hand if the blue triangle breaks below the bottom rail it will have 4 reversal points and be a consolidation pattern to the downside. If that were to occur the price objective would be down to the 2016 low at a minimum.

Below is a 75 year quarterly chart we were watching very closely during the last impulse move down, because it broke below the brown shaded support and resistance zone going all the way back to the early 1970’s. When the price action was trading below the brown shaded S&R zone I speculated that we could see some reverse symmetry to the downside, as the rally back in the early 1970’s was so vertical. Here we are a year or so later and the CRB index has rallied right up to the top of the brown shaded S&R zone at the 200 area. What had been support since the 1970’s is now turning into resistance at the 200 area? Again, another important area to keep a close eye on.

Below is a 10 year chart for the $GNX, another commodities index, which shows how volatile the price action was between 2007 and 2009. After a strong counter trend rally that lasted 2 years from 2009 to 2011, the price action built out the blue triangle reversal pattern which was responsible for the decline into the 2016 low.

This 15 year monthly chart shows the 2 patterns that are building out at the 2016 low which is the possible inverse H&S bottom or the bearish rising wedge. At some point we’ll get our answer, but patience is sometimes required.

This next chart is a 20 year look at the $GYX which is an industrial metals index that  has been backtesting the neckline from the previous H&S top. Another critical area to keep a close eye on.

Of all the different commodities indexes out there the DBC is probably the most actively traded one. Here too you can see the possible bearish rising wedge building out. The blue triangle failed to deliver the impulse leg up that should have taken the price action much higher.

Like the other commodities indexes we looked at, is the DBC building out an inverse H&S bottom or the bearish rising wedge? Each pattern will have a profound effect on which way the price action will go, the inverse H&S bottom up and the rising wedge down.

There is one commodity that has broken out below the bottom rail of a bearish rising wedge, which is the $NATGAS index. About 3 weeks ago the price action gapped below the bottom rail of the rising wedge with a quick backtest 2 days later. I can’t rule out a backtest to the bottom rail at some point. Note the complex bottom that formed at the 2016 low at the end of that massive impulse leg down.

The weekly chart for NATGAS shows the big H&S top which led to the big impulse leg down which had a price objective down to the 1.86 area. The big question we have to ask, is this just a bear market rally out of the 2016 low?

Below is a 30 year quarterly chart for NATGAS which shows the price action testing the top of the brown shaded S&R zone during the big decline that ended at the 2016 low. As you can see it now has been tested two times since 2012. The black arrows shows how it could reverse symmetry all the way down to its all time low around the 104 area. It’s not going to happen over night because this a a long term quarterly chart, but the possibility exists.

Now lets look at a daily chart for the $WTIC, oil index, which also shows a potential bearish rising wedge building out. Just like the CRB index the price action has been chopping around in a very tight trading range just below reversal point #4. Last Friday the price action tested the bottom rail of the small trading range for the 5th time telling us that rail is hot. These types of patterns can wear your patience out waiting for a breakout. If the WTIC breaks below the bottom rail of the rising wedge the price objective would be down to the previous February 2016 low.

This next chart is a 10 year daily look at WTIC which shows the massive H&S top which led to the big oil decline into the 2016 low. That massive H&S top went on and on and on before it finally gave way. The pattern I showed you on the daily chart above at reversal point #4 could be considered a fractal to the massive H&S top on the chart below. The red trendline inside the rising wedge would be the fractal.  How long will it take for the smaller daily H&S top to complete is unknown, but it will probably take longer than we think.

This last chart for tonight is a 15 year monthly chart for the US dollar. What we know for a fact is that the possible bearish scenarios on all the charts we looked at above won’t take place if the US dollar declines. The commodities will only decline if the US dollar rallies, so the bulk of the proof lies with the US dollar. How the US dollar goes, so will the commodities complex. All the best…Rambus

Late Friday Night Chart…Combo 10

I try to post this combo 10 chart for the PM complex at least every 3 weeks or so as it gives you a good sense of which areas within the precious metals sector are the strongest or weakest. Since the rally out of the December 2016 low the juniors have been leading the way higher including the $CDNX which is a Canadian small cap index that has many precious metals stocks.

Looking at the sidebar you can see this was the first down week for the $CDNX since the December 2016 low which is pretty amazing. What else is amazing is how the precious metals and the miners have diverged in a big way over the last two weeks. Again looking at the sidebar, which gives you a close up look at the last four months of trading, note the price action in GLD and SLV which are still rallying hard to the upside. Now look at the rest of the precious metals stock indexes which are showing a massive divergence taking place over the last two weeks as they are moving lower. Normally this isn’t a good sign for the overall health for the PM complex.

In this Weekend Report I’m going to take an in depth look at many of the precious metals stocks looking for clues as to the health of this sector. Many of these stocks make up the big cap PM indexes like the HUI, GDX, XAU and GDX. How these stocks trade so do these indexes. Have a great weekend and all the best…Rambus

Weekend Report Part 2…Big Bases : Big Moves in the World Stock Markets

Before we look at some of the 2009 bull market uptrend channels there are a couple of more big consolidation patterns I would like to show you on some of the stock market indexes. The $DAX, German stock market, broke out of its 13 year triangle consolidation pattern back in 2012. Late last year it broke out of the blue bull flag with a nice clean backtest to the top rail. The big triangle consolidation pattern also had a smaller triangle as part of its internal structure.

Next up is the $FTSE, London Financial Times index, which is in the process of breaking out from a 15 year rectangle consolidation pattern. Just like the $DAX the FTSE also built out a triangle consolidation as part of the much bigger rectangle. The key to the breakout of this massive rectangle is the H&S bottom that formed just below the breakout area. The right shoulder was formed during the BREXIT vote. The shakeout before the breakout.

The $BVSP, Brazilian stock market, is still working on a 9 year triangle consolidation pattern. We last looked at this chart in December of last year when it was backtesting the top rail of a multi year downtrend channel.

Lets look at a couple of US stock markets that we’ve been following for many years starting with the $SPX. This index was actually one of the first of the major stock markets to breakout of its massive consolidation patterns. The breakout in 2013 was accompanied by the breakout from the blue bullish rising wedge. There was a very short one month backtest to the top rail of the flat top expanding triangle before the impulse leg up began in earnest. That impulse leg ended in 2015 where the next consolidation pattern was needed to consolidate those gains, forming the blue bullish expanding falling wedge. Again notice the clean breakout and backtest to the top rail which has led to our current impulse move higher, which is making new all time highs.

I commented on this exact same chart as the one above back in May of 2009, two months after the bottom was put in at the fourth reversal point. I was speculating on how this big trading range may play out over the years, as described in the notes. There was no way to know how things would play out back in 2009, but a big consolidation pattern was one of the possibilities.

Below is the quarterly chart for the SPX which goes back 75 years and puts the bullish  flat top expanding triangle in perspective. There were only 2 times since 1942 that the SPX closed below its 84 quarterly simple moving average. The first time was at reversal point #2 back in 1974, which was the low for the bullish rising wedge. The second time was during the 2009 crash at reversal point #4 in the bullish flat top expanding triangle. At the time the 1987 crash felt like the end of the world and we were going to enter into another 1929 scenario. As it turned out the 1987 crash was just the first reversal point in the bullish rising wedge, which led to a very powerful rally which took the SPX up to its bull market high in 2000.

Recognizing a big consolidation pattern before the breakout actually takes place to confirm the pattern can be a double edged sword. In big consolidation patterns like the INDU has, The Jaws of Life, can be very trying. The breakout took place back in mid 2013, but unlike the backtest that only took one month on the SPX chart we looked at earlier, the INDU took its sweet ole time with multiple backtests that took several years to complete. The backtesting process built out the blue triangle consolidation pattern and when the price action broke out above the top rail it confirmed for me the Jaws of Life had finally completed all the work, and the next major bull market was underway.

The 75 year quarterly chart for the INDU puts everything in perspective. Note the breakout and backtesting process out of the 1970’s H&S consolidation pattern which only took about 2 years, vs our current breakout and backtesting of the top rail of the expanding triangle, which took about three years before the impulse move is finally gaining some legs. Big patterns equals big moves.

Next lets look at several of the 2009 bull market uptrend channels which shows you what a bull market looks like. Most of the US stock markets have a very nice bull market uptrend channel, but for now I would like to focus in on a couple of the stronger ones that are leading the way higher.

The XLF is a financial sector etf which had built out a very tight uptrend channel out of its 2009 crash low. After breaking out and backtesting the top rail of the blue triangle consolidation pattern, the XLF rallied back up to the top rail of the uptrend channel where it should have stopped to consolidate that move. When you see a nice channel like this and the price action breaks out above the top rail it’s usually a good sign that the lower channel is going to double in size as shown by the black rectangles. Just like any resistance line, you will see a breakout and a possible backtest before prices move higher in this case.The breakout occurred in December of last year and the backtesting process has been ongoing to the center dashed trendline, which was the top rail of the original uptrend channel. Besides the tech stocks the banking stocks are one of the strongest sectors in the markets right now.

The $COMPQ has formed a nice parallel uptrend channel and is testing the top rail after breaking out from the blue bull flag. This tech index has been very strong recently and I’ll be watching the top rail very carefully for a breakout and a possible doubling of the lower channel.

The $NYA is a broad measure of how stocks in general are doing. As you can see it’s breaking out to new all time highs, but is still way below the top rail of its 2009 uptrend channel.

This 35 year monthly chart for the $OEX 100 shows its 13 year bullish expanding falling wedge consolidation pattern.

$OEX 100,  2009 bull market uptrend channel.

IYR, Real Estate etf.

$XVG is another good proxy for how the stock markets are doing in general.

AWCI, all world stock market etf.

VEU, all world stock markets minus the US stock market.

The last chart for tonight is the VWO, emerging markets etf, which is building out a 6 year trading range which still hasn’t broken out. If the price action can breakout above the top rail then there is a good chance that the big trading range will be a halfway pattern to the upside.

In the Wednesday Report we’ll look at some individual stocks that have produced some big multi year trading ranges that have broken out and are moving higher. Many of the stocks will be from the tech sector which are household names that were born back in the 1980’s and 1990’s during the birth of the information age. All the best…Rambus

 

Weekend Report…The US Dollar : “Rumors of My Death are Greatly Exaggerated”

Tonight I would like to update the US dollar as its been testing critical support since breaking out from the nearly 2 year horizontal trading range in early November of last year. The daily line chart shows there was a nice clean backtest about a month later to the top rail which looked like breaking out and backtesting process was complete. After a short rally and making a higher high the US dollar declined once more to the top rail causing a lot of uncertainty for many traders. After a slight breach of the top rail the US dollar is now trading back above that very important trendline. So far at this point there is nothing to conclude the bull market that started in 2011 is over at least accordingly to the daily line chart.

This next daily chart for the US dollar is just as important as the horizontal trading range we looked at on the chart above. I don’t believe anyone else has recognized the double H&S bottom that has formed on the right side of the horizontal trading range. As you can see there were two backtests to the neckline which came in at the same area about 2 months apart which have held support. The six week correction from the recent high has given most of the indicators time to reset as shown by the red circles. The neckline at 98.85 still remains critical support.

Next lets look at some longer term weekly charts and the bull market that began in 2011. This first weekly chart shows the US dollar in linear scale and the 2 consolidation patterns we looked at on the charts above. The bottom rail of the major uptrend channel has done an excellent job of holding support as shown by the many touches which tells us that rail is very hot and to be respected. The bottom rail of the major uptrend channel also helped in the development of the double H&S bottom as the head and both the bottoms for both right shoulders formed on that trendline. One last note on this weekly chart which shows the 30 week ema held support during the US election spike and then again 2 weeks ago when the price action was backtesting the neckline.

Below is another weekly look at the bull market uptrend channel that is slightly converging in log scale. Big bases lead to big moves and with the 5 1/2 year, 8 point diamond this bull market in the US dollar should have a long ways to run yet. This log scale chart also has a slightly higher price objective than the linear scale chart for this next impulse move up which should be to the 117 to the 120 area as shown by the blue arrows. As I’ve said previously, if the US dollar breaks below the bottom rail of the major uptrend channel I will wave the white flag and surrender to the bears, but until that happens I have to remain a bull regardless of all the reasons the US dollar needs to collapse.

This next weekly chart is a combo chart which has gold on top and the US dollar on the bottom. This chart shows the major positive divergence for the US dollar to gold made back in 2011 as shown by the purple arrows. In 2008 gold was topping out just before the big crash while the US dollar was bottoming. From the 2008 crash low gold went on to make its bull market top in September of 2011. As gold went nearly vertical into its all time high you would have thought that the US dollar was crashing and burning. As you can see the US dollar actually made a higher low vs its 2008 low which is where the positive divergence took place and the beginning of the US dollars bull market.

Since the bull market top in 2011 gold has been declining in a bear market with the top rail holding resistance. That top rail comes in currently around the 1305 area which will be the defining line between the bull and bear market for gold. If gold can trade back above that 2011 bear market downtrend line that will be a very big positive that the bull market is back in earnest. On the other hand if gold fails to take out that very important top rail of the bear downtrend line the bear market lives on.

Below is another weekly combo chart which has the US dollar on top and gold on the bottom. This combo chart shows the major 2011 uptrend channel for the US dollar and the major 2011 downtrend channel for gold. Over the last year or so you can see the inverse correlation between the US dollar and gold as shown by the H&S bottom on the US dollar and the H&S top on gold, brown rectangle. The neckline and the top rail of the 2011 bear market downtrend channel intersect at the 1305 area which again is going to be the inflection point between the bull and bear market IMHO.

The weekly chart for the UUP US dollar fund, shows the nearly 2 year correction as a bullish falling flag. A complete backtest to the top rail was almost achieved two weeks ago at 25.50.

The longer term look at the UUP shows a previous bull flag that formed at the end of the major downtrend channel and gave the UUP the energy it needed to finally breakout and begin its new bull market.

This last chart for tonight is another proxy for the US dollar which is the USDU index which has a more equal weighting of currencies. This index hasn’t been around very long but it to is showing an uptrend channel with the 30 week ema offering support two weeks ago.

The last time the US dollar embarked on its impulse move up starting in the middle of 2014 and ran to March of 2015 currencies and commodities took a big hit. This is why it’s so important to get the major direction of the US dollar right as so much depends on which way it moves especially in the intermediate term.  All the best…Rambus

 

 

TNA Update…

Today the TNA is finally breaking out from is 10 week consolidation pattern.

MIDU is also breaking out of its 10 week consolidation pattern today.

SPX is breaking out of a 10 week bullish rising wedge today.

INDU is breaking out of a 10 week expanding triangle today.