I had intended to post part III of my interest rate series, however market conditions dictate that I post views on the current market.  This market is now communicating that it is at high risk.  For two months now,  I have been advocating a strategic retreat.  Head for the sidelines and watch the action with an unemotional detachment.  The market is now sounding the alarm and one should be on high alert for a downside acceleration.

Plunger’s Bullet Points 

Here are the main points I have presented over the past few weeks:

1. The market has been in a final Phase III since the Trump election- it lasted 16 months.
2. Secondary Reactions rarely occur in Phase III- Therefore, any major decline could very well be the end of the bull market and not just another correction.
3. Dec 2017-Jan 2018 was a classic buyers capitulation which traced out as a steeple top in many indexes.
4. The proper course of action for investors should be to execute a strategic retreat and head towards the sidelines. One could redeploy capital once the market resolves itself according to DOW Theory methodology.
5. Rising rates are in the process of bursting the largest credit bubble in history.
6. The bursting of the bubble will usher in a Post Bubble Contraction.
7. Gold stock bull markets are most robust within the confines of a PBC.
8. Phase I of a new bull market in the gold stocks began in Jan 2016.
9. Phase II started in Dec 2016, however initial action is characterized by further consolidation and lethargic action resulting in investor doubt and discouragement.
10.  Excessive bearishness in the gold sector is unwarranted despite weak looking price action.

The largest financial bubble in history is concluding and one should prepare his bomb shelter and know how to protect oneself.

Supreme Complacency

I am standing on a mountain top and shouting-REDUCE YOUR RISK

Am I calling for a crash? – No, I am not, however conditions exist which would allow a crash to happen.  We are now 2 months after the highs put in by the major indexes world wide.  This is the timeframe that crashes have traditionally occurred.  1929 and 1987 are classic examples.  Complacency reigns supreme as dip buyers are getting lathered up for another romp to the upside.  Don’t believe me?   Check out this Charles Schwab email I received in my inbox and don’t miss the name of it:

Bullish Investors typically continue buying one third of the way into a bear market, up until the point of recognition. After this point the pain becomes too great and they then retreat.

The arrogance and cluelessness of both the average investor and the financial establishment astounds me.  Take the FED, they think they can create $4.5 T of QE and then simply yank $1.8 T of it right out of the market while simultaneously increasing government borrowing by $1.2 T/year, all while threatening the largest buyer of T-Bonds with a trade war!  So after years of QE they think they can just turn the dial the other way and reverse it… astounding. Problem is, it doesn’t work that way.

This historic giant bubble is in the process of bursting- it’s now just a matter of time.

But enough of what Plunger has to say, let’s turn our eyes towards the market and listen to its message.  You know the line: I report…you decide:

First we will look at the big picture according to Dow Theory, then individual market leadership to include the FANGS and the FAB 4 then we will update our tour around the world.  Hang on as its going to be a wild ride…

DOW Theory Update

Friday’s action was huge as we now are poised to trigger a secondary reaction in the senior index.  I have gone back and reviewed the works of the great DOW theorists and conclude that we will use closing prices, not intraday extremes to determine market action.  Therefore the DOW has now violated its February lows and the Transports sit right at the lows.  One more closing down day in the transports triggers a SR classification:

Next we see a line chart with intraday prices:

The significance here is in the volume.  Note down days are on elevated volume.  I have posted numerous times the 10 year chart of decreasing volume throughout this bull market and compared it to the 1932-1937 analog.  It is the only bull market that resembles what we have seen from 2009-2018.  The 1937 bull market ended with a 50% decline in 12 months.

Now here is the shocker… The throw over top has now broken down into the channel. This is very bearish action judging from past historical outcomes.  Don’t forget to review that declining volume! :

Do I need to remind you of the risk here?  Check out what happened in a prior occasion:

The FANGS

Moving on let’s look at everybody’s “I wish I had bought” stocks. First let’s look at Facebook.  There will be a special private place in hell reserved for this company and its founder.  This company is becoming the poster boy for corporate abuse of its customers.  Just check out what Zuck thinks of his subscribers:

One should be asking themselves in light of recent revelations why would one knowingly volunteer to place oneself into an intelligence gathering operation on oneself?

Plungers recommendation: Cancel your Facebook account if you haven’t done so already. Then short the stock!

Daily chart… keep in mind this has been a market leader for the bull market:

And its not over yet:

AMZN NFLX GOOG I haven’t marked up these charts, but I leave it up to you to draw conclusions.  I would be out of them even though AMZN and NFLX have not broken down yet:

The Fab Four- The generals of the market

Over the past year the Fab Four (MCD, BA, MMM, CAT) have led the market higher and powered its advance.  Every market needs its generals and they were it.  Note how these 4 generals are all in the process of breaking down.  Once the market broke in early February and the bounce began these stocks should have resumed their advance to a new high due to the flow of money resuming back into them. The fact that this has not happened tells one the market has changed.  Worse still they are now in full breakdown mode:

MCD

Boeing

MMM

CAT- Heartland Favorite

Financials

They say a bull market has to have a healthy financial sector. Let’s take a look at the ultimate money center Rockefeller bank:

A Trip Around the World- Global markets imploding

In the following series of charts keep your eye trained on the following patters. Upside acceleration from December to January indicating buyers capitulation followed by upside exhaustion.  Steeple tops resolving into Island reversals.  And finally notice how contracting triangles have built out on the NL of the right shoulder.

Germany

First off Germany wins hands down the most ugliest market chart.  Don’t know why this has traced out such ugliness, but its there:

It’s got everything: Island reversal which left behind a massive zone of distribution and an army of trapped investors.  A massive broad H&S top with urgency gaps slicing right on through the 150 & 200 EMA as if they were not even there.  And now we have the break below the NL.  The weekly below shows how stochastics have flatlined like a dead EKG.

Global Indexes

Here is a look at all the world…gulp.

Here is Vanguard’s take of the world… note the buyers capitulation in the last 2 months leading into the top and the ensuing exhaustion:

The world minus the USA: Whoops.

Europe

The above chart simply is a horror show.  Double H&S Tops and now it has left behind a massive distribution topping range. Trapped Investors!

Another view of Europe-less focused on Big Caps:

London- A major international market

All the patterns are here and its now violated its NL…OMG.

Paris…Ticking time bomb

AMS-  Tick Tock…

Warsaw

Madrid

Stockholm

Zurich- Money Center

Moscow- Interesting as its the only healthy looking market

Canada- watching…

ASIA- The damage has spread around the world

Tokyo- NL drawn off the closing price shows price now violating NL

Hong Kong- World’s 6th largest market and an insight into China.

India- Tech sector not saving it.

Manila- Runner up most ugly contest.

Kuala Lumpur – Setting up

Seoul

The Big Boy- Shanghai. This could be the major pin for an unraveling

I saved this for last in the Asia series since it is so important.  Recall China has $4 T base money supporting a $40 T credit structure. Remember its all about interest rates.

Folks sit for a moment to take in this above chart. Jumping the creek of its NL in powerful fashion.  This is the market transmitting a message that this is not just a marginal break.  This is a deflationary signal of debt collapse.  It’s not messing around here.  Listen up!

Below the weekly gives it up.

The above monthly shows its hand of where it may be going.

Market collapses have signatures.  The powerful shocking collapse of 1929 announced  a deflationary implosion ahead.  No one believed it and read the collapse wrong. It wasn’t until May 1931 that the deflationary implosion signaled by the crash actually surfaced and was recognizable.  People blame crashes for economic damage to the economy, but that is not what a crash is.  A crash is simply a recognition of the underlying deterioration in the economy which has already occurred.  So when I see the daily price action of the Shanghai exchange jump the creek right across the NL with a gapped space on both sides it gets my attention.  It is sending us a message.

Emerging Markets

I have heard a few soothsayers claim this is an oasis.  Not so fast:

I suspect Brasil and Russia is holding this index up.  The message is the same once these two countries are get taken out IMO.

QQQ- The Darling

This index of course has had a religious following.  It topped 6 weeks after the main indexes did.  Big Deal… that’s what it always does.  Same thing in 2000.  And now it is displaying the same weaknesses as all the other indexes.  Island Reversal with a failed declining RSI.

General Stock Market conclusion:

If these charts do not scare the bejesus out of you then I am sorry I can’t get through to you.  I encouraged everyone take a strategic retreat months ago.  Here is my heart felt plea: This is a big deal.  Complacency reigns supreme.  If you care about your financial future… your life… run to your bomb shelter NOW.  Yes we will have a buy the dip moment and it should be tradable, but it is not advisable to think that moment is now.

A Personel Message:

I write these reports with little to no feedback.  Often times it seems I hit the send button and it simply goes off into the internet ether.  I have no idea if I am getting through to anyone.  Perhaps many think these are delusional bearish thoughts, after all the FED and CNBC say everything is going swimmingly.  They say the economy is strong and unemployment is at cycle lows.  But the key to being a successful investor is to be able to see things outside of convention.  That’s what one gets when one reads the entrails of Plunger…take it or leave it.

I have laid out the case that this 9 year bull market has been nothing more than a financially engineered event, similar to the 1932-37 bull market which ended disastrously.  This market and financial bubble are much, much larger than that era and has the risk of deflating even more violently than the 1937 market.  This has now become a global event, there is no conventional place to hide.  I am in cash, and in the precious metals sector with a short DOW position.  Good Luck because you are going to need it.

Coming soon is the bullish case for gold and the gold stocks.

Editor’s Note

Plunger is an Associate Writer and Resident Market Historian at Rambus Chartology

https://rambus1.com/

I haven’t posted much on the US dollar as it has been trading at an important level on the six year weekly bar chart. The last time we looked at this chart the price action had just broken below the bottom rail of the five point expanding triangle which is technically a reversal pattern. I showed how a backtest to the underside of the bottom rail at the 90.50 would be critical to the overall big picture. The bottom line is that as long as the US dollar trades below the bottom rail of the expanding triangle the bears are in charge. If the bulls can take the US dollar above the bottom rail they will be in charge. As it stands right now the bears are in control. Note how the bottom rail has reversed its role to what had been support from above to resistance on the backtest.

If you’ve been following me for any length of time you know I’ve been a major bull when it comes to the stock markets. The last two years were some of the best years to be a bull in one of the greatest bull markets of all time and I don’t say that lightly.

A little over a month ago we got our first correction of 12% in over two years on the SPX. Everyday the SPX would be up four or five points on the open, nothing major, and then  move slowly higher in a non threatening way which made it fairly easy to stay on trend. Impulse moves like that are the easiest part to trade as the corrections, when they came, were very small of only 3% to 5%.

That all changed a little over a month ago when it was time for the stock markets to correct that two year impulse leg up. When it’s time to correct the markets don’t need an excuse they just do it and it usually comes out of nowhere. The initial leg down is usually the hardest followed by counter trend moves that eventually build out some type of pattern.

Tonight I would like to show you some of the long term charts which is the best proxy to define if the stock markets are in a bull or bear market. One of the most important decisions an investor can make is to determine if the market they choose to play is in a bull or bear market. Trading long in a bull market can be forgiving if your entry point is off. Eventually the price action will catch up to the bull and you’ll be forgiven for your bad entry point. On the other hand, if you go long in a bear market you’ll be constantly fighting the dominate downtrend like a salmon swimming upstream. It’s always much easier to go with the dominate trend, long during bull markets and short during bear markets. It sounds simple but I can assure you it is not.

For instance the bull market that started in the PM complex back in 2000 was a good example of trading inline with the uptrend. One could have done some shorting, but it would have been a much tougher game to play. After the bull market topped out in 2011 those folks that traded to go long the PM complex have been fighting a tough battle. There can be some small victories, but the big prize comes when you can get in sync with the major trend whether it’s up or down. As many are finding out major trends can last for many years and is unforgiving when you try to trade against it.

Below is a 20 year monthly chart for gold which shows you the beautiful bull market uptrend channel along with all the consolidation patterns. You can throw a dart anywhere within that uptrend channel for a place to buy. As you can see you will eventually be vindicated with your buy point. It might not be the best entry point, but you’ll eventually turn a profit.

Now throw a dart at the correction that began in 2011 to the present day which I’ve labeled as a six year expanding falling wedge. It should become very obvious to you how much harder it is to go long during a bear market vs a bull market. Even if you were good enough to pick the exact low and sell at the exact high you would have made a decent profit but nothing like an impulse move up during the bull market years.

Next I would like to show you some stocks that are in a long term bull market. Many of these charts I’v been posting for many years as there bull market has been unfolding before our very eyes. This first chart is the $BKX, banking index, which gave me a major heads up back in 2007 that something wasn’t right with this index. Fundamentals couldn’t have told you when the game was over, but the break below that massive S&R line did. Several years ago I extended that S&R line to the right hand side of the chart wondering if it was still hot. As the old saying goes, an important trendline never dies it just slowly fades away. Note how the price action built out that blue triangle just below the S&R line which told us it was still hot. We could see a backtest from the topside which wouldn’t affect the bullish potential for this index, above is bullish and below is bearish.

Below is the $BTK, biotechnology index, which has been tough to trade in the short term, but when one looks at this long term chart the price action is just off of its all time highs and looks like it wants to go higher. Again, throw a dart at the price action since the 2009 low to the present and you will have a profitable trade. On the other hand try shorting the 2009 bull market and see if you could have made any real money.

Next is a monthly chart for the $COMPQ. How much would you have gained if you had kept shorting this bull market that began in 2009. It can be done but the big profits go with the bull.

Is the $HGX, housing index, completing a breakout and backtest to the top rail of a five year bullish rising flag?

The $HSI, Hong Kong stock market, is breaking out from a 10 year triangle consolidation pattern.

Of all the US stock markets the $NDX 100 has some of nicest Chartology.

After breaking out from a 25 year bullish expanding falling wedge the $NIKK Japanese stock market, built out a H&S consolidation pattern. It’s currently in the process of backtesting the neckline.

After several years of breaking out and backtesting that massive neckline the $NWX, networking index, is finally beginning to move higher. The red arrows shows how this index may reverse symmetry to the upside vs how it came down.

We caught the biggest part of the last impulse move higher on EEM emerging markets etf, but when I sold out a month ago I’m looking for a place to get back in. Sometimes the markets don’t make it easy for you once you lose your position.

Below is another index the FXI China large cap etf, that I’m looking for a new entry point as it is just breaking out and backtesting the top rail of a 10 year triangle consolidation pattern.

I have many more stock I could show you that are strongly suggesting the bull market that began in 2009 is still very strong. What is so special about our current bull market is that it’s a world wide event that is taking most countries to a new standard of living especially the 3rd world countries. It’s a good thing to see struggling countries get a piece of the pie that we take for granted. We live in a global community now where everyone is tied together in one way or another. This boom will have its pit falls along the way, but I for one am glad to see the world participating in a new paradigm shift for the many. All the best…Rambus

You may have noticed that the RUT 2000 small cap index has been fairly strong recently on a relative basis. This may be due to the fact that it has been in breakout and backtest mode for the last six months or so. Below is a long term weekly chart which shows the four year black expanding triangle consolidation pattern we’ve been following with the breakout and backtest taking place. The backtest to the top rail was a little hard, but it did hold support. You can also see the smaller blue flat bottom expanding triangle that formed just below the four year top rail.

This very long term monthly chart shows an even bigger consolidation pattern that goes all the way back to 2000, the 18 year bullish expanding rising wedge. The last time we looked at this chart I suggested one of the reasons the RUT had been weaker on a relative basis is because of all the overhead resistance it had to overcome to break free. The impulse move may be at hand.

The quarterly chart shows the 18 year bullish expanding rising wedge all by itself. It’s always nice to see the small caps do well durning a rally phase in the stock markets.

I’m going to use this long term weekly chart for the HUI as a proxy for the other PM stock indexes. This chart also shows you why I’ve remained very cautious on any PM stock rally.

What we know for sure is that the HUI rallied strongly out of its January 2016 low to the August 2016 high which was very impressive. At the time it looked like the initial impulse move in a brand new bull market which was a welcomed sight after 5 years of bear market price action. At the 2016 top is where we should have expected some type of consolidation pattern to start building out to consolidate that massive gain, but what we got is not what we wanted to see.

I remember taking some flack from several newsletter writers when I posted a possible H&S top in place. I was told that everyone and their brother could see that H&S top so it would fail, the new bull market was born and that was that. From my perspective that H&S top formed exactly where one would expect to see a reversal pattern form which is at the end of a big move. If the bull market was truly underway the HUI should have started to chop sideways creating a consolidation pattern instead of a reversal pattern.

After the neckline gave way there was a 5 week backtest to the underside of the neckline that confirmed for me the H&S top was valid and correct. After the backtest was complete the first impulse leg down took about 8 weeks to complete. That low is marked by reversal point #1 at the beginning of our current triangle trading range. Note how the neckline also held resistance on the second backtest at reversal point #2 again adding more confirmation the neckline was hot and to be respected.

Another thing we know for sure is that the HUI has been chopping sideways for over a year now consolidating that first impulse leg down. The markets usually don’t make it easy to see the real picture until well after the fact. As you can see our current one year triangle had a false breakout below the bottom rail and then a rally back into the triangle which at the time negated the breakout to the downside. Discipline dictates that you have to respect the fact that when the price action closed back inside the triangle that we had a false breakout and to start looking at the top rail for resistance.

We have looked at many triangle patterns in the past that morphed into a bigger triangle. The red circles show how our current triangle has morphed into a slightly larger triangle. Sometimes we see a symmetry false breakout of the top and bottom rails which are about the same amount. On the HUI we have a symmetry false breakout below the bottom rail with the counter trend rally failing to make it all the way up to the top rail of the triangle trading range. If you take the false symmetry red circle below the bottom rail and added it to the failed rally high you will see a complete reversal which we could be label as a 5th and 6th reversal point.

After the failed rally attempt back inside the triangle the HUI declined once again closing below the bottom rail which puts the triangle back into the consolidation pattern to the downside category. The first thing I’ll be looking for is for the HUI to make a lower low for confirmation the impulse move down is in progress.

I have two price objectives based on two different measuring techniques I use. The first one is the breakout to breakout method which would give us a price objective down to the  135 area. The impulse method gives us a price objective down to the 124 area. So far our current impulse leg down is only about 2 weeks in the making. If we are truly beginning the next impulse leg down it should be fast a furious into the price objectives.

I know this isn’t what most of you want to hear, but this is what the charts are strongly suggesting. If I’ve said this once I’ve said it a million times, “the only rule in the stock market is that there are no rules.”

In a perfect Chartology world a decline down to the bottom rail of the major uptrend channel, around the 120 area, would be just what the doctor ordered. That type of move would shake out all the weak hands and lay the groundwork for the resumption of the secular bull market that began in 2000. After nearly seven years of bear market price action we may now be witnessing the light at the end of the tunnel.

Tonight I would like to step back and take a serious look at silver.  I believe the chartology is beginning to speak to us that this is a huge opportunity that is setting up right now for those who can be a little patient. But first let’s take a quick look at todays market.

That’s a screen shot I took off of the lead headline on Drudge today, so the public now knows…the cats out of the bag.  That’s right you heard it here first as weeks ago this theme was outlined and made clear that it was coming our way in a hurry.  The PM markets responded accordingly.

In the weekend report it was pointed out that we should all keep out eye on the VIX.  If the VIX stayed elevated expect more trouble for the stock market, it it dropped below 20 then we could expect the market to have a decent rally or even recover its losses of the past 10 days.  Well today we got the move below 20 and the market is starting to look a bit better as the chart below shows.

Dow– Note the mini break above the consolidation

I have made my opinion clear that the general stock market could  regroup and recover, but I am not interested in playing it. I see too much opportunity in the upcoming bull market in the PMs and the resource sector.

Novo Wakes Up

Another little surprise today was Novo resources busting a move.  Again the weekend report noted that it appeared that the worse may be over and it was prepping to reverse its trend and start heading higher.  Hopefully it will have the legs to break above the channel in the chart below.

Norilsk wasted no time today to reassert itself.  This is our little core nickel play considered a safe way to play the battery metal EV theme.

Big Base=Big Move

Getting Serious About Silver

I have to tell you that this realization has just hit me like a 2X4 in the head.  Frankly it is totally counter to my understanding of the fundamentals of silver and how it fits in the big picture of the sequence of which asset classes perform first in a new bull market.  It has always been my understanding that silver is the latecomer to the party.  That’s the way it has been in the past.  After all silver is chiefly an industrial metal since its traditional monetary role has faded. So when an economy enters a recession silver should weaken right?  After the devastating bear market from 1929-1932 silver actually bottomed 6 months after the DOW.  Whereas the DOW completed its 89% decline in July 1932 silver continued declining until Dec 1932.  When the gold stocks bottomed in Jan 2016 the silver stocks severely lagged the gold stocks for the first 6 weeks of the rally.

So it’s normal that silver comes along later and puts in its big gains once the market gets going. That’s the consensus since that’s how it has been in the past.  But here is the value of chartology… it tells us real time if something different is happening.  It appears to me that the silver stocks are getting ready to begin their advance in the next phase of the bull market.  They actually appear very bullish as they have the appearance of being in the later phase of their consolidation of the big move of their phase I advance.

The Most Important Trait of a Successful Investor…Patience

This past week I noticed several comments on the forum expressing frustration that the PM stocks were not acting like they were “supposed” to.  Inflation goes up the PM stocks should immediately respond also.  When the stock market goes down gold stocks are supposed to go up- right?  Let me just say that we all need to have some patience.  These things take time, we can’t be in the instant gratification business.  In the future I plan on writing a piece explaining the dynamics of what makes the gold stocks run in a bull market.  But for now let’s just trust the charts and see what they are saying:

Gold & Silver- actually what we would expect

We have discussed before that gold and silver began their bull market in Dec 2015.  They both had a great phase I rally into late July 2016.  Gold then corrected and consolidated this move over the next 6 months and put in its correction bottom in December 2016. That was an 18.6% decline.  It then began Phase II of its bull market where it remains today.  Silver also peaked in July 2016, but it took an entire year, until July 2017 to correct the first leg up.  That correction or consolidation gave back 32.6% of its first leg up.  It appears silver is now in the early stages of its bull market phase II.  Therefore we can see these metals have performed as we would have expected.  Gold rallied 31% whereas the more volatile silver rallied 55%.  When the corrections came gold lost 18.6% in 6 months while silver lost 32.6% in 12 months.  This is classic behavior.

Silver…Playing catch-up, but getting ready to romp.

One more thing, We are in a real bull market here, although early stages.  It’s the real deal, just look at the thin blue volume line on both charts representing the 30 W EMA of volume.  It is in a constant expansion.  Volume rises in a real bull market.  It is noteworthy that volume has slowly declined in the S&P over the past 9 years….hmm…

It’s Time to Wake-Up and Smell The Coffee

But here is where we need to sit up and pay attention.  The silver stocks now appear as a group to be ready to finish the correction they have been in for the past 18 months.  Where I have been content to think the bottom in these stocks will likely come during the seasonal doldrums of late summer where the PMs usually go to sleep, it appears to me the turn up may be sooner than that.

The Long Term Monthly Charts- The big picture jumps right off the page

After the decline of most stocks over the past 2 weeks the daily chart patterns of the silver stocks look particularly gruesome.  Looking at these charts does not motivate one to go right out and buy these things.  Frankly they are downright ugly.

But here is the thing…When one looks at the monthly charts some of these patterns simply jump right off the page and say buy me now!

MAG Silver

Mag was named my Blue Ribbon silver pick in the year end edition.  In the chart below we take a long term 10 year monthly look at MAG. OMG is this a thing of beauty!  Understand the principle of coiled energy and when it is released it powers a move.  It coiled energy for 7 years inside of that big triangle. The BT to its breakout of its horizontal triangle has been on going for two years now.  Furthermore the recent drop below the upper triangle line is likely a classic wash out move just before it launches on its power drive.  IMO the chartology here is telling us this is a perfect entry position.

Looking at the weekly chart we have to ask could this simply be a half-way pattern?  When MAG was began it was Dr. Peter Megaw purpose to find a silver deposit that would be profitable at $4 silver since that was back in the early 2000’s before silver made its advance.  MAG is super grade.

Fortuna- Monthly

Again here we have a long term chart that jumps right off the page at you.  Fortuna has bored me to death over the past year.  Well now I understand why, it is simply taking its time to build its BT base and getting into stronger hands for the big move ahead.

Fortuna Weekly:

Fortuna not only has silver but has massive high grade zinc.  Zinc will come into its own this year.  Note today it broke above its 30 W EMA….nice.

Pan American– Ross Beaties Powerhouse

The monthly on PAAS shows a nice bull flag consolidation.  It has been going for just under two years, when it breaks out they have lot’s of upside leverage:

The Weekly shows the resistance to giving up any ground.

Again I am not going to be displaying the daily charts as the noise in them detracts from the big picture.  Below I will show numerous weekly charts of silver companies that are in different stages of finishing up their long correction.  You can see that there remains little time remaining before the big move begins:

USAS superb:

DV– My personal favorite after MAG

AG  Another big primary producer. Maybe it will never reach 3.31

BCM– Super Leverage

AXU High Grade

ASM– The Spanish called this “Mountain of Silver”

CDE-used to be the crap company of the sector… Times have changed.

EXK– Solid Mgt.

EXN– This is a large holding of Eric Sprott

HL Big Name Producer

TV– Little known but on the move

One of the key things to remind oneself of is that over the past 2 weeks with the markets crashing all around, these stocks have remained in their consolidation patterns.  No technical damage on the weekly charts.  This is very encouraging and speaks to the case that these stocks have absorbed all the punishment intact and they are in stronger hands now.  They are ready to advance.  I ask you can you say the same for the average stock in the S&P 500?

Volatility has now returned to the stock market after a hibernation of several years. An explosion of volatility normally is indicative of a change of trend. The recent signals transmitted by this market have been classic  and has been telling us that we have entered the final topping process of this extended and stretched economic cycle.  The trading over the past 7 market sessions fit a classic pattern of market panic which corrects  the excesses of a market which just completed an upside climax and had been without correction for close to two years.  I believe this panic is now over and the muscle memory of buy the dip will now reassert itself.  That however does not mean good times will continue as the froth has now been blown off of the bubble.

Anecdotal signs of a market top have been flashing loud and clear now for the past 6 months. Since last summer the public has finally embraced this market and over the last 3 months have been recklessly plunging head long into it. Complacency reigns supreme so that after last Friday’s 666 point drop even the superstitious remained complacent.

Complacency exists due to the lack of any meaningful correction over the past 2 years and valuation levels set records with the S&P 500 trading at 26X earnings and the Russell 2000 at 150X earnings. With interest rates now in an established uptrend we now have a bubble in search of a pin…looks like it may have just found it.

We have noted before that the month of January often accommodates market tops. Gold in 1980,  the DOW in 1973 and the Nikkei in 1990 are stand out examples. With the Deep State spying scandal now reaching critical mass the similarities to the Watergate bear market of 1973-1974 have become undeniable.  The scandal reaching critical mass means it will now have to run its course to completion,  exerting a cancerous effect upon the market.

The Bloated Market Exhausts itself

After putting in 15 consecutive months of higher lows and two years of closes above its 50-week moving average it began to feel like the market would never go down again.  After prolonged rises such as this when a correction finally comes around it can unfold quite violently as this one indeed has. Most investors actually have no idea just how extended this market had become. In late December I wrote the piece on how the DOW had entered a throw over top. Throw overs such as the DOW in 1929, Nikkei 1990 and Gold 2011 where shown. We now see the resolution of the current throw over is shaping up like others in the past.

1929 Throwover Top

Note how in 1929 RSI peaked at the beginning of the year and the market was able to continue to advance until Sept 1929.  This argues that today’s market should eventually be able to regroup and make a renewed assault at the existing highs.  No guarantees that it will, but in the past momentum has peaked before price, not with price.

2018 Throwover Top

It is important that price immediately close up above the upper trend line or the 1929 example could develop. There is so much residual momentum in this market that it could resume its march back up towards its January highs.

Upside Momentum- Just How Crazy it Had Become

When reviewing the RSI of this market it simply had become insane.  How crazy?  100 year flood plain crazy.  The below chart shows how ridiculous the upside thrust of the last few months had become.  Weekly RSI had reached 94- that is simply INSANE.  The NASDAQ back in the Dot-Com mania only reached 84 and surely you remember how nuts that was.

The Phase III mania top

What we just experienced over the past 3-6 months was a phase III mania top. It fully expressed itself in the throwover.  The retail public finally came in and threw caution to the wind.  It is the final bull run that excites the imagination, however precious little money is made from entering the market at these times, but the bull mania is contagious and it is precisely these times that lambs rush to the marketplace and of course eventually to the slaughter. No money is made, or at least banked in the climatic months of a great bull episode. Serious money is coined by purchases made in bad times, not by chasing fading rainbows of a mature advance.  But that is just what we witnessed.  Just as winter follows summer, bear markets follow bull markets and the seasons continue.

BITCOIN- The Cherry on the top of the Everything Bubble

That is the best description of the bitcoin phenomenon I have seen.  Bitcoin started out as an alternative currency in response to the reckless money printing and debt monetization of the central banks.  It was a legitimate libertarian attempt to address the issues of currency store of value and oppressive sovereign banking.  Just like what happens to all people who get close to Hillary Clinton central bank money printing corrupts everything as well.  Bitcoin morphed into a risk asset not a currency due to its violent volatility.  Its store of value function has been trashed and the inherent flaw of its blockchain has been revealed to be massive electrical consumption.

If bitcoin doesn’t function as a currency what can explain its moonshot rise?  It is best explained as an unintended consequence of easy-money monetary venting.  Like skyrocketing art prices for the rich, bitcoin became the preferred vehicle of money flows of the young tech savvy libertarian crowd.  Simply another case of excess money printing having to go somewhere.  It has now had a quick 70% drop, but holders are still holding as there has not yet been any capitulation.  This argues for lower prices ahead.

The slaughter of the cyptos is part of the process of wiping the froth off the top of the everything bubble.  This marginal investor class has now lost a lot of money and that money is not coming back into the market since it’s gone to money heaven.  So when the stock market resumes its advance there will be less juice in the system to fuel its rise.  It is significant that bitcoin, the most speculative asset in this bubble, peaked in the historic topping window of Dec-Jan. The peaking of the cherry on the top of the everything bubble symbolizes that its over.

The Topping Process has Begun

The above commentary is not saying the market goes straight down from here in a bear market.  There is too much upside momentum remaining to do that. Over the past week we experienced a violent correction, but it was a classic shakeout type decline. Bear markets are slow grinding declines, the action of the past week was like a fast burning prairie fire, more typical of a correction. A clean out of the Johnny come latelys.

The Structure of Panic

A typical panic will have at least 4 hard down days with a 1-2 day relief rally in the middle of the down sequence. The pressure relief day typically comes after the second hard down day.  The decline then resumes and the 3rd down day is typically the scariest.  Finally during the 4th hard down day within the panic period an upside reversal occurs and the panic is over.  This “typical” model was mentioned in the forum early in the week and is precisely what actually unfolded.  Since 1000 point swings in the DOW have characterized this panic, one could continue to expect after shocks, however I believe the worst is over and buy the dip muscle memory will now come in.  The buy the dip habit wont go away until well into phase II of the bear after plungers have been burned enough to say “no mas”.

In the current action below note the described classic sequence with the pressure relief day.  Also note the positive divergence in the RSI hinting it may be over:

Below we see the extreme Down vs Up Volume bar on the bottom indicator which usually means a reversal is imminent:

The line chart shows a fledgling inverse H&S bottom starting to build out.

Below we see three past examples of violent froth removing corrections which did not closely follow the classic model.  Their amplitudes were slightly larger than the current correction.

Two in a row:

Gold Silver ratio announces trouble ahead.

This indicator has been steadily building since last April.  Eventually the credit stress it was reflecting would reach a breaking point which it did this past week.   We can see the clean break above the NL as the market imploded.  One troubling thing here is how it shows the S&P in a broken H&S signaling it may want to go lower.

The Story of the VIX

For the past 6-7 years speculators have been cleaning up collecting dimes in front of a steam roller by staying short the VIX using the vehicle of the XIV  (VIX spelled backwards) which is an inverse ETF of the VIX.  It worked great until this week when the steam roller decided to shift into high gear without telling the speculators.  Mr. Market decided to take away ALL of their dimes stored over the past 7 years- in one day!

The daily XIV- No one got out alive. 90% losses minimum for everyone- The gap insured there was no escape for anyone.

The VIX simply exploded and has stayed elevated which puts the entire market at risk since blown out VIX traders may need to sell good stocks to cover their losses.

Is Europe the Tell?

The European stock market put in a suspicious looking top last May.  It looked done to me, however it put on an impressive recovery.  Turns out it was a head fake.  The double top it just put in simply looks disastrous… an implosion.  Avoid the continent across the pond- it’s a flame out.

Interest Rate Indicators

The everything bubble is supported by depression level interest rates.  Without these rock bottom rates the bubble would implode upon itself.  As rates go down long term cash flows become more valuable.  This encourages long term investment which depends on these lower rates.  Once rates begin to rise these projects become marginalized and uneconomic.  This triggers the recession.  The TLT appears at a critical juncture.  If it violates its neckline mayhem will break out in the market and the economy.

The risk now is the monetary alchemy going on in Washington.  Tax cuts combined with increased spending fly in the face of reduced treasury purchases by the FED, China and Japan.  That’s a recipe for higher rates.

The Economy is headed for good old fashioned– YIELD SHOCK

So the pin is higher rates.  Back in February 1928  the FED began raising rates and finally succeeded in bursting the bubble in September 1929.  Our FED has been slowly raising rates for 2 years now and what we saw last week was the pin coming in contact with the bubble. In addition to rising rates, the FED is on track to withdraw $1Trillion out of the economy over the next year- Hold on as that’s called Quantitative Tightening.

But the below interest rate indicators suggest that the recession still remains off into the future.  Using the past as a guide these charts indicate not until late this year or 2019.

Interest rate spreads

The exit indicator below is saying NOT to exit the market at this time as the sell signal comes in at 1.32.

Gold- Bottoming Action Hanging by a Thread

The rally in the gold stocks which started in early December imploded this week. There was a decent chance it could have lasted another month but succumbed to the overall market decline.  After all gold stocks are stocks too.  The bigger picture to review is not the stocks, but gold itself.  Gold began its bull market in December 2015.  In the past 42 years gold has had 6 bull markets. In those bull markets the rally coming after the first correction following the first leg up has lasted 58, 61, 55, 55, and 64 weeks long.  Our current rally since December 2016 lasted 55 weeks so its par for the course.  We can now expect a retrenchment followed by the resumption of Phase II of the bull in gold.  In the chart below the classic buy point will be when the CCI reaches the -100 level as depicted.  Once this entry occurs gold should resume its phase II.  Phase II is the longest phase where the public eventually comes to understand the bull and wants in.

Gold could have a visit into the upper $1200 range

Anything above $1230 remains a healthy backtest- Shake’m out.

It’s been a long hard road of base building:

Big Picture Saucer Bottom

Keep the big picture in mind.  Gold is building out a solid foundation to support a massive powerful move.  Big Bases = Big Moves

The Gold Stocks

My silver/gold stock buy indicator just entered the buy zone for the first time in two years.  The last buy signal was the great buying opportunity of Jan 2016.  Note it is now back in the buy zone, but it has not triggered a buy signal yet.  It must turn up to trigger a buy.  But its important to know its ready to go

We need to combine the above trigger indicator with my gold bottoming system for a launch signal.  As of now the gold bottoming system is NOT on a buy.

The most important indicator in the system, the HUI:GOLD ratio, is not green as you can see below:

Negative Configurations:

The only positive signal:

The gold stock indexes are stressed and putting out mixed signals.

They are hanging by a thread and stochastics indicate further to go to the downside before they turn around, but I think they are buyable here.  Sure you are not likely to nail the bottom, but we are getting near the end of Phase I in the stocks whereas gold appears to have already entered Phase II. When Phase II arrives in the stocks they will likely explode out of the gate. I am starting to nibble with fresh money now.

Commodities

Commodities paint an interesting picture. They are presently at a critical juncture as can be  seen on both of these charts. Below we see on the daily chart a strong backtest of the S&R line and the 150 EMA (30W EMA).  Will it hold and resume its advance?

The super long term 70 Year Quarterly chart shows it chewing its way through overhead resistance.  It is easy to see two possible polar opposite outcomes here.  First if we entered into a nasty recession demand could fall off and it could resume its free fall through the thinly traded area.  Yes, it’s conceivable it could go all the way down.  That would be a deflationary disaster.  On the other hand if it managed to chew its way all the way through over head resistance it could run up 50% rather quickly.  This would deliver an inflationary shock to the economy.  In support of this outcome here is an interesting tidbit: In the past 500 years commodity prices never went down more than 3 years in a row until 2011 where they went down 5 YEARS in a row!  That’s like a compressed spring ready to launch.

DOW DISASTERS

These big American blue chip stocks look down-right ugly.  This is the core of industrial America.  Could it be telling us something?

GE– Remember when this was America’s premier company.

IBM- Failing top?

XOM– In virtually every ETF

Plungers Core Portfolio

Here are just some of the stocks in my core portfolio:

Altius– Performing well in a market shakeout- Intact

Strong backtest

Sprott– Correction?  What correction.

SII – Daily

Norilsk– Solid as stainless steel

BT in progress

Mirasol – Well positioned for the upcoming bull market

Other Non-Core Stocks

NSU– Struggling, but incredible value.  Give it time.

Ivanhoe– Now nibbling at that well telegraphed Gentleman’s Entry.

AMZ- Acting very well

ROXG– Nice buy point

Novo– Inverse H&S inside the channel?

Bad Boys

NAK- It was looking so promising.

CMG- Will it ever be ready for prime time?

PVG- Such potential…buy on blind faith?

AG– What if this plunged to $3.50 and you could buy it there?  Back up the truck.

In Summary:

This has been a great week.  Why?  Because it provides us a marker in the ground.  We know where we are now within the bull/bear cycle. We are in the end zone.  The market going up relentlessly every day over the past 3 months was disconcerting and nuts. The over throw tells us it was a speculative blow off, an upside climax.  Climaxes can’t last forever and It finally met reality… that’s good, gravity finally asserted itself.   The market can regroup and rise again, but this showed us the end is nigh.  The froth of the everything bubble got blown off and if it does rally to its old high it will no longer have the juice nor conviction it had before.  Some investors who were hurt by this downdraft are now scared and will use the rally to escape partially intact.  Recall that retiring baby boomers can’t afford to get crushed again and this correction serves to bring them back down to reality.  The ending process now can proceed.  The market could still see higher highs, but it will become more narrow and the adv/decline will start to fade. The great thing is we know what comes next.  Eventually the market succumbs to a ruthless bear market and the gold sector resumes its next phase of its bull.

This knowledge is golden… It was a great week.

Before we look at tonights chart I would like to reiterate once more that we have traded one of the best bull markets runs in history. There was hardly a time over the last year or so that the stock markets were down more than 2 or 3 days in a row. It seemed like everyday I would log on to Stock Charts in the morning the SPX would always be up 3 to 5 points. It was just a steady move higher with little volatility.

Last Friday that nice gentle uptrend we had grown accustomed to came to an exciting climax. What we are experiencing right now is the beginning of some volatility that is going to take some time to get back under control. Think of dropping a super ball off the top of the Empire State building. First you get a really big bounce followed by a big decline then another bounce that is less strong with the next bounce getting weaker. At some point the initial volatility will be reduced back into normal price action.

During those volatile swings we should see some type of consolidation pattern build out that will be unrecognizable in the beginning, but as time passes it will slowly show itself. We know where the top of the new trading range is, but the bottom still needs some confirmation that Tuesday’s low is in fact the low for this next consolidation phase.

Lets start by looking at the 12 year monthly combo chart which has the VIX on top and the SPX on the bottom. When we looked at this chart on Monday night the VIX still hadn’t reached the 43 to 47 area which has shown us in the past where an important low on the SPX was. Tuesday we got the spike into the major buy zone which is strongly suggesting an important low is in place.

That being said a new trading range should develop to consolidate our previous impulse move up similar to what happened in 2011 and 2015. As you can see the VIX spike nailed the low, but there was a lot of chopping action before then next impulse leg up began which is how markets are supposed to work. The spike in the VIX marked the low in 2010, but it still took several months of bouncing along the bottom before the SPX rallied into the 2011 high. Even the 2011 VIX spike took the SPX three months of chopping around the bottom before the next impulse started.

It’s possible that the SPX could just reverse back up and takeout January’s high, but that would be the exception and not the rule. The horizontal black dashed lines show the 2011, 2015 and now our 2018 trading range that are all the same height. At this point in time I think it’s going to be more of a time thing than anything else as far the sideways price action goes.

This next chart is a daily combo chart we’ve been following for some of the US stock market indexes which is showing some interesting price action. I have mentioned many times in the past that an important trendline never dies, it just slowly fades away. From February to September of last year most of the US stock market indexes built out a bullish rising wedge formation. Normally during a corrective phase support can be found on top of a preceding consolidation pattern.

What I did on this combo chart was to extend the top rail of the rising wedges to see if they were still hot. In most cases they held initial support. Currently all the US stock market indexes are all trading above their top rails with the RUT being the weakest which is trading right on top of its top rail extension. It would be painful, but I wouldn’t be surprised if the top rails were backtested once more for good measure. If they held again that would be a very bullish setup.

This next chart is the weekly combo chart we’ve also been following which has the all important 30 week ema on it. This week the 30 week ema was tested on all the indexes except for the tech indexes, the COMPQ and the NDX, which came very close to testing their 30 week ema. It’s been well over a year on many of these stock market indexes  when the 30 week ema was last tested. So we can now add two more layers of support, the 30 week ema, the top rail of the bullish rising wedges to go with the spike on the VIX above 47.

Next, lets look at some of the 2016 uptrend channels with the down to up volume chart below it, starting with the COMPQ. Normally when the down to up volume rises to 5.00 we are beginning to see some strong selling taking place which can start the bottoming process. The last time we had a massive spike in the down to up volume chart like we had on Monday was way back in September of 2015, which began the sideways trading range. Note how the 200 day moving average has formed the bottom trendline of the 2016 uptrend channel. Also note how the down to up volume spike looks on the RSI at the top of the chart.

Below is the 2 year daily chart for the SPX which shows its 2016 bull market uptrend channel with the price action testing the bottom rail with the high, down to up volume spike on Monday.

Below is a long term monthly chart for the SPX which shows its 2009 bull market uptrend channel. If the original 2009 bull market uptrend channel below the dashed mid line is in the process of doubling then I would like to see the dashed mid line hold support around the 2600 area.

I’ve been so focused on the stock markets I haven’t had much time to look at the PM complex. Until gold can take out the golden neckline the bear market is still in force. That neckline is still holding resistance this week.

Three weeks ago it looked like SLV had a decent chance to finally breakout from that three plus year diamond pattern. When the price action hit the top rail that completed the seventh reversal point which would have put the diamond into the reversal category to the upside. The failure to breakout now put the price action into a possible 8th reversal point which would be a consolidation pattern to the downside if the bottom rail gives way. As you can see the price action is getting more compressed as the chopping action into the apex continues.

This long term weekly chart puts our current diamond in perspective. The million dollar question is what direction will the diamond breakout?

The easy part of our bull market in stocks is now over. Now the hard part starts. The volatility is going to be insane for awhile and that will drive most investors nuts. Understanding what is happening can relieve some of the pressure, but the markets are made up of emotions which is hard to control for most investors. Greed will trump fear every time. All the best…Rambus

I’ve been patiently waiting for EBAY to breakout from its 18 month bullish rising wedge. Today it finally broke out with a huge breakout gap. If it backtests the neckline at some point in time around the 41.60 area I will take a position.

The weekly chart puts the bullish rising wedge in perspective.

EBAY built out a massive double H&S bottom that launched its bull market. Big patterns lead to big moves. This stock was born in the 1990’s and was one of the leaders back then. Maybe it will take on a leadership role once again.