A Lot of members ( and Outsiders) are expressing disbelief ,and of course, some goldbugs  outright ridicule, for Rambus Weekend Report with very dire “potential” prices for Gold and the prediction that the Dow et al will Outperform Gold for a long time going forward.

GOLD INTERESTING POTENTIAL TARGETS  https://rambus1.com/2017/07/09/weekend-report-135/

Personally I understand why these charts and what they are implying can be very disturbing to Gold Investors …BUT I have found by experience that dismissing Rambus Long term Charts and Analysis out of hand is usually a Big Mistake.

Here are some examples of other LONG TERM calls that were ridiculed and dismissed as coming from a lunatic.

Note the links to the complete posts are provided but for those too busy to read them  all , the key chart from these posts is just below the link.

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THE JAWS OF LIFE : October 2014

There seems to be a lot of confusion out there as to whether the stock markets are bullish or bearish. Is the Dow Jones in a topping pattern as so many analysis are suggesting? I’ve seen some charts that are calling the big trading range , on the Dow Jones going all the way back to the 2000 bull market top, THE JAWS OF DEATH. Man it doesn’t get anymore dire than that. As usual I have a different take on the JAWS OF DEATH, which I would like to share with you  tonight .

Before we look at the first chart for the Dow Jones I need you to clear your mind of everything related to the stock markets in any shape or form. That means no Elliot Wave counts, Time Cycles, Gann Lines , volume studies, no indicators of any kind. Clear your mind of every article you’ve ever read on the stock markets, bullish or bearish. And last of all, NO CHARTOLOGY. I want you to look at just the pure price action without any bias whatsoever. From that point we can then start to see what is really happening to the Dow Jones and related markets .

https://rambus1.com/2014/11/19/wednesday-report-49/

So…here is what happened…The call was made at the end of 2014…after that 2015 saw 2 hard back tests to the top jaw and then since 2016 a big rally has ensued. it would be easy to have given up on this call but that top line ultimately held.

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US DOLLAR BEARS PREPARE TO HIBERNATE MARCH 2013

https://rambus1.com/2013/03/10/dollar-bears-about-to-go-into-hibernation/

Here is what happened next :

After 15 more months of going sideways to down , The dollar suddenly took of in a strong impulse move. from 80 to 100. (Rambus still hasn’t given up on the idea this consolidation is a halfway pattern ) TBD.

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PRECIOUS METALS STOCKS TOO BIG TO FAIL : FEBRUARY 2013

https://rambus1.com/2013/02/22/precious-metals-stocks-too-big-to-fail/

What happened next ?

HUI failed and fell to 100 before recovering

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Here is a Call on Silver (via SLV) that I couldn’t believe at the time .”SLV BLUE DIAMOND” January 2013

Followed soon after by “SLV RED DIAMOND” November 2013

And then: Look at those POs

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One More :

BLACK FRIDAY IN THE ENERGY MARKETS is a compilation of a long term call made initially September 2014..The Compilation follows the evolution of this thread which was posted as Friday Nite Late Charts…

https://rambus1.com/2014/11/29/friday-night-charts-21/

And then

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So: as I started to say. After seeing all these Long term calls. You would agree that discounting Rambus long term work can be hazardous to your financial health.Since these are long term , as you have seen , they do take time and twists and tradable turns to fulfill however.

No guarantees of course but the track record for long term is pretty good eh ?

Fullgoldcrown

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WHAT IF GOLD HAS A DROP DEAD LINE ? January 2 2017

Now I would like to start showing you the very big picture which begins to bring all the pieces of the puzzle together. This first weekly bar chart for gold shows the potential massive double H&S top with the 1100 area being the most important price point for gold at neckline #2. If neckline #2 gives way the price objective will be down to the 500 area, which seems impossible at this time, but big patterns create big moves. Note the multi year base made back in the late 1990’s which launched gold’s bull market that took over five years to build out.

There was an important development this week in the stock markets that few picked up on. This week the Transportation Averaged closed at a new all time high confirming the bull market is still alive. For the last 7 months or so the Transportation Average has been building out an expanding triangle trading range. The price action still hasn’t broken out above the top rail yet, but if it does I would view the expanding triangle as a halfway pattern to the upside. Keep in mind you have to have a consolidation pattern to get an impulse move as you can see from all the other consolidation patterns starting at the last reversal point.

As you can see on this weekly chart the Transportation Average is a good producer of some really nice chart patterns as shown by all the blue formations. The H&S bottom was also very symmetrical as shown by the neckline symmetry line. Durning the strong move up back in 2013 and 2014 the Transportation Average formed 2 bullish rising wedges which told us that the bull market was very strong. When that leg of the bull market ended in early 2015 the Transportation average built out the 5 point bearish falling wedge reversal pattern.

The 20 year monthly chart shows a massive symmetrical H&S bottom which launched our current bull market with the head forming at the 2009 crash low. I’ve shown you many times that when there is overhead resistance many times you’ll see a consolidation pattern form just below that important resistance zone. Note the red triangle that formed just below the neckline which led to the breakout and the strong impulse move up.

Below is a 100 year quarterly chart which puts the 2009 H&S consolidation pattern in perspective. After 100 years of trading the Transportation Average is trading at the highest level in history which is confirming the bull market in the INDU. Without one you can’t have the other so as long as both are making new all time highs it is what it is until it isn’t. Have a great weekend. All the best…Rambus

Today is called a recognition day when it finally becomes apparent that  the trading range is ending and you have a massive breakout move. We can still get a backtest to the breakout point which would  represent the 2nd area to take a position. Today GLD gapped below the H&S backtest to the bottom rail of the black bearish rising wedge and that very important S&R line which last week I said came into play around the 117 area.

GLD weekly chart:

GLD’s monthly 2011 bear market downtrend channel.

Just a note to check Plungers Posts at the Forum. Some very interesting developments worth your while.

(Link to the forum is on the top right here)

Remember Forum access is free with your subscription. it is a separate log in and for most a separate password.

FGC

gmag@live.ca

It’s been awhile since we last looked at this combo chart which has the TLT on top and GLD on the bottom. Earlier this year I was showing you a possible H&S top on TLT, but the breakout below the neckline never materialized because of the big gap at the 128 area. I was showing the right shoulder as a possible bearish expanding rising wedge. Last week the price action gapped above the top rail and the neckline symmetry line when it closed the gap.Today’s move down has created an island reversal just above the top rail of the expanding rising wedge. A move back below the top rail of the expanding rising wedge will show a bull trap and possibly the high for the right shoulder.

I would like to put out a short update on the oil market and my view of the QQQs being a proxy for the Hi-Tech end of the market.   With the hard sell off in the oil market of this week  this would seem a logical place to give it a rest and for a short seller to step over to the sidelines for a while.  Anytime the market has gotten itself to this level of being oversold we have seen a rip to the upside.

One of the keys to being a successful short seller is to know when its time to press ones bet.  Extended moves to the downside come from oversold levels and I am going to show you why I believe we may have further to go to the downside before this current move is over.

You should recall we executed our first short position in oil in the beginning of March just prior to oil falling out of the descending triangle .  Keep in mind the dynamics of a descending triangle is where the ceiling of supply gets lower as time progresses.  Each time price rises it meets selling at a lower level.  Note below once the triangle got established the higher volume bars were red indicating sales volume.  This was an in-your-face bearish announcement to anyone who cared to listen.  But typically not many care to listen to the language of the market… so they were “surprised”.

Looking a the chart above I have described it as a super-ball bouncing down the stairs.  When a ball is rolled down the stairs the amplitude of the bounces increase with each progressive bounce.  The reason for this of course is potential energy is being converted into kinetic energy.  We see this dynamic in the chart above.  This is not just a coincident metaphor, but a market principle in energy dynamics.  Recall how the oil price stayed in a bounded channel for 24 years between $10-$40 from 1980-2004. During that time it was coiling energy so when it finally broke out it had the propulsive power to run to $147 over the next 3 years.  These physical dynamic images are useful in understanding markets.  So what that means for us now is this market still has downward energy in it.  The second bounce we saw occurring in the month of May was strictly based on OPEC-hype narrative.   It immediately fell apart after the OPEC meeting.

Here is what this move looks like within the the bigger picture of the entire bounce off the lows of Jan 2016.  We see how we built out a H&S right on the lower boundary of the rising wedge—Classic.  Also note how RSI, although low does not limit a move further to the downside.  Stochastics are flatlined on the bottom NOT showing any case for an immediate  upward move.  MACD Histograms also do not have a pulse.  Bottom-line there is not yet any sign of a bounce taking hold in this chart.

The OPEC Narrative

I understand this site focuses on the charts and not the narrative, however I believe its useful to have knowledge of what’s going on behind the scenes.  Besides, that’s how Plunger rolls when it comes to how I construct trades.  You must know that Saudi Aramco is positioning itself for a major IPO of its assets.  Recall that an IPO is how insiders cash out of a market and “unload” their assets onto the public.  This deal is in the works.  It is estimated that this will be the biggest IPO in history.  Valuations are in the $2 Trillion neighborhood.  Obviously, the higher the oil price the bigger the IPO, so we can see how imperative it is for the Saudi’s to keep the oil price up.

But here is the problem, the Saudi narrative has now developed into “the boy who cried wolf”.  Their public efforts of managing supply to elevate price have been entirely discredited by the market.  Cutting supply simply cedes market share in the world of financialized oil hedging contracts.  Stated differently, all OPEC jawboning narratives are now shot.

ECON 101- Ingredients to a bull market

Now I have a question for you:  Where is the chapter in your Econ 101 textbook which describes that a bull market can be based on decreasing supply?  I must have been asleep in class on that day because I don’t remember that one.  (Actually Econ 101 is nothing more than Keynesian indoctrination of course, where the only worthwhile thing taught is supply/demand curves… but I digress).   But my point is that a bull market must be driven by increased demand.  Supply typically rises along with the trend of higher prices.  So what has occurred over the past 16 months is the market has been artificially moved higher without any rebalancing of supply and demand.  Therefore this market is now currently out of balance.

This is simply a way to highlight that the entire structure of the oil market is an engineered facade. The free market eventually tears down facades, which is what I believe we are witnessing before our eyes right now.  The CBs of the world offer virtually free money which funds the frackers.  Saudi cuts back market share and ramps prices to $55 where the frackers hedge future production.  The frackers can now pump increasing amounts without regard to the oil price for 12-18 months.  Its a recipe for an oil crash.

Volume Dynamics

Now this is where us Chatologists have an advantage.  The charts reveal something is up.  Rambus has often taught the principle of Symmetry.  Stated differently, the way the market goes up is the way it goes down and vice versa.  Volume analysis is a similar concept.  It’s what those volume-by-price bars are for on the left side of the chart.  If there is little to no volume in a price range then there is little support or resistance.  As a result price tends to move rapidly through these zones.  Well that’s what we have with the oil chart.  Below I put the volume-by-price bars onto our bearish rising wedge chart and we can see a zone between $34-$41 having very thin volume.  So breaching $41 unlocks overhead supply from any supporting structure which can hold it up.  There is a possibility that we could witness a flash crash in the oil market from these levels down to as low as $34.

Another very important clue to future price dynamics can been seen by looking at the internal structure of this bearish rising wedge.  Take a step back and notice how ALL of the bottoms in the chart above are sharp V-bottoms.  I don’t have to tell you that V-bottoms are not the ingredients to a sustained move.  V-bottoms cry out to be tested and are not foundational.  Folks what we see above is a picture of a developing crash.

Here is another view from Alastair Williams’ twitter feed showing the long term volume nodes which on his chart show overhead supply becoming un-locked at $42.

Pivot Point Support

Pivot points can be helpful to indicate where possible support can come into play.  Here we show an S-1 at 40.32 and S-2 at 37.62.  I regard pivot point analysis as marginal assistance however it is one additional data point to be aware of.

What could go wrong

So what could de-rail this path toward Sub-$40 prices?  Plenty of course.  OPEC is in the false narrative business, so any engineered event could derail this move temporarily.  A supply disruption scare would be the principle method of boosting the price and there are plenty of ways to engineer that over the short term.  OPEC jawboning is obviously futile at this point which explains why OPEC was so silent this week.

So I am staying the course, I see the opportunity for a downward acceleration, however there is always the risk of a short covering rally for traders.

QQQ Update.

I have made my short term bearish case for the QQQ’s in the past 2 weekly reports.  I think the US market is set-up for a crack.  The bull market may not be over as conditions allow for another run to higher highs after a shake-out, but for now we’re walking on eggshells.

First off, Rambus has made it clear that there is still no resolution in the QQQ.  We  have bounced off the NL of a potential H&S pattern therefore no sell signal from a price perspective has been triggered.  As mentioned however, sometimes I get out a bit further on my skis and this is a case of this.  So with a note of caution, I would like to show you what I am seeing.

Below we see a 4-year weekly view of the QQQ.   It shows a powerful move upward where it underwent a mid-course triangle consolidation.  The move was so powerful that we see how it morphed from a horizontal triangle into an ascending triangle.  That was a big clue of what was to come.  After the breakout we see a mania-power-run leaving tiny volume-by-price bars in its trail.  It went on to top (for now) at a weekly RSI of 81.06.   This is simply extraordinary.  We then put in a volume spike-outside reversal to the downside associated with an upside exhaustion.  I mentioned earlier that this has not occurred since March 2000 at the peak of THAT mania.  So I see the potential for a downside crack in the market right here.  Call it the shakeout before the breakout.

Let’s dive in a little deeper and examine the internals which shows what I am seeing.  Below   is how I interpret the price action.  It’s all pretty classic and consistent with bounce dynamics.  We see bearish rising wedges all over.  In the RSI and price action it looks like a dead cat bounce (DCB).  Volume decay supports this view as there is no longer enough interest to support a higher move to a new high for now.  If the NL is broken we see a MM down to 131.5.  All pretty vanilla standard interpretation.

On Balance Volume

So now let’s give a bit more deeper insight: Volume analysis.  Joe Granville, the great one, gave us his on balance volume (OBV).  He had an epiphany and saw it one day as a valuable way to view volume accumulated. In a similar fashion Dick Arms one day walked into the stock exchange, looked at the board and it struck him…the “Arm’s Index” was created. (look it up).  It just hit him.  So OBV is a running summation of up minus down volume.  A simple concept actually, easy to see how its a great measure of bull vs bear internal action.  If the market is moving up it would make sense that there is more up vs down volume.  If not, something is obviously wrong.  Which by the way was another Granville truism: “What is obvious, is obviously wrong”

So here we see OBV with the red line over price.  Talk about obvious… there is something wrong here, price has risen on declining OBV.  This is called a divergence.  I would say its announcing this bounce is built on borrowed time:

Momentum

Let’s now get the “feel” of momentum.   Step back a bit and look at this chart from a distance.  RSI is a level of overbought and oversold.  It also expresses momentum. I have superimposed RSI on top of price to drive home my point.  Put yourself in a car riding up the price bars while observing the RSI peaks.  Get the feel of how the movement upward is starting to feel exhausted. Note how the last peak just couldn’t get that RSI level up there anymore.  Furthermore, this recent dead cat bounce virtually just sat there.  Now look down at the MACD histograms, they  can’t even get above zero…Stochastics are substandard as well.  This paints a confirming picture of exhaustion.

Mr. Fibonacci sez Prego….almost

We have virtually a perfect 61% retracement of the move down:

The Hindenburg Omen

The Hindenburg Omen (HO) does not mandate any specific outcome to happen, but its a statistical data point that gives us insight to a forward path.  We just registered a confirming second HO this week.  There has never been a crash without a HO.

Here are the statistics over the past 29 years after a confirmed HO:

24%- Major Crash

39% chance 10-15% decline

54% chance 8-10% decline

77% chance 5-8% decline

92% chance 2-5% decline

7% chance of a total miss

So I just wanted to present to you some analysis of these two markets.  I certainly don’t “know” what happens next, but you should be familiar with these potential outcomes.

Tonight I would like to update a few ratio combo charts as several are at a crossroad, which may shed some light on where the PM complex may be headed next. A couple of the ratio combo charts worked out extremely well in calling a bottom in January of 2016.

Lets start with the TLT:TIP ratio combo chart we looked at recently which shows if we’re experiencing inflation or deflation. When the ratio in black is falling it’s showing deflation and when it’s rising it’s showing inflation. From the 2011 high the general trend has been for deflation. About a year ago you can see the black ratio was rising in a pretty strong move up, but late last year and the first part of this year the ratio topped out and has begun to fall. The red arrows shows how the ratio is reversing symmetry down over the same area on the way up. For the time being there isn’t much in the way of support.

At the bottom of the chart I added the CRB index and the GDX which also topped out in 2011 and have been trending down with the black ratio. If the TLT:TIP ratio keeps falling, will the CRB and GDX keep performing in a similar manner as they have since their 2011 bear market highs? The 30 week ema is the first line of resistance they will need to overcome followed by the top rail of the 2011 bear market downtrend channel.

This next ratio combo chart compares gold to the XAU on top with the XAU on the bottom. Long term members are familiar with this chart, but for the new members I’ll give you a quick rundown. For many years when the ratio chart on top would get down to the 3.70 area it was a good time to sell your pm stocks, red arrows, and when the ratio got up to the 5.10 area it was a good time to buy your favorite PM stocks.

All that changed dramatically during the 2008 crash in the PM complex when the ratio made a new all time high above 6.00 for the first time in history. That new high for the ratio above 6.00 told us just how weak the PM stocks were to the price of gold. Little did I know back in 2008 that the under performance of the PM stocks to gold would continue until January of 2016. That little double top in 2016, yellow shaded area, was the first clue that the ratio may be topping out. When the price action broke below the double top hump that was the beginning of the January to August 2016 rally in the XAU. I suggested at the time that the rally could be very strong because the 20 year, 6 point parabolic arc, was finally giving way. Normally when a parabolic move ends you can have a big move equal to or greater than the parabolic move in the opposite direction.

I was initially looking for support at the brown shaded S&R zone, but the ratio declined all the way down to 12.50 before it finally found support. After the ratio bounced at 12.50 I drew in the possible H&S top looking for a right shoulder to form in the brown shaded area. That has happened, but now the ratio is testing the upper limits of the brown shaded S&R zone. The bulls want to see this ratio declining as it suggests that the PM stocks are out performing gold which is what you want to see in a bull market. The XAU chart on the bottom shows how it began its 2016 rally at the exact same time the ratio broke down from the double top.

This next ratio combo chart is a weekly line chart which compares gold to the XAU on top with the XAU on the bottom, which gives us a close up view of the possible H&S top on the ratio chart. When I first built these charts the possible right shoulders were still pretty small in relation to the left shoulders so I added the black arrows looking for some symmetry. As you can see, if the H&S patterns are going to play out we need to see the ratio chart on top start to break down as it’s testing the upper limits of the right shoulder, while at the same time we should see the XAU putting in its low for the right shoulder. These potential H&S patterns are 4 1/2 years in the making so if the XAU can take out the neckline there will be a very large base in which to launch a new bull market. On the other hand if we see the ratio rally much higher than where it is now the odds favor a continuation of the bear market.

Below is another ratio combo chart which compares TLT to gld on top with gld on the bottom. When the ratio is rising gld is generally falling and vice versa. The ratio has a pretty strong inverse correlation with gold. On the left hand side of the chart you can see the ratio built out a H&S top while gld built out an inverse H&S bottom at the 2008 crash low. Then in 2011 you can see where gold topped out and the ratio bottomed out which was the start of the bear market for gold as shown by the red arrows.

The ratio chart gave us a very clear and early buy signal back in January of 2016. The ratio was building out a rising wedge formation which ended up having 7 reversal points making it a bearish rising wedge. When the price action broke below the bottom rail of the rising wedge a buy signal was given which coincided with the small double top on the Gold to XAU ratio chart we looked at earlier.

Some of you may have already noticed that the ratio chart on top has formed a 15 month falling wedge which has broken out topside while gld on the bottom chart is finding resistance at the top rail of a possible triangle. The heavy black dashed trendlines shows the 2011 bull market in the ratio chart and the bear market in gld. The ratio chart on top is strongly suggesting that the bear market might not be over for gold  if the breakout continues to hold. Again it’s time for the PM bulls to step up to the plate and show us they mean business. I would love for nothing better than to see the PM sector in a bull market again. All the best…Rambus

Last week the markets began to emit signals providing a certain level of clarity. These signals were particularly evident in the precious metals sector. Looking forward markets now appear slightly less opaque than before.  As a result, I thought it best to engage ourselves in devising a plan for the rest of the year. We will call this … Plunger’s Strategy Session.

As I have mentioned Rambus has been very gracious in giving me free reign in what I write. You must realize I am a little more speculative than Rambus tends to be. I tend to get out a little more in front of my skis than Rambus. This means of course, I have more of a chance to be wrong. I would call myself a macro/technical trader, whereas I would consider Rambus more of a breakout trader. He often takes positions when the market gives a direct signal using the market’s price action as his trigger. Rambus’ method is likely more reliable, than mine however I tend to be more asymmetric, hunting for the big score. Peter Brandt, the legendary wildly successful trader is an example of a breakout trader.

Although, I have some slightly differing views on some market sectors, overall I am remarkably in line with Rambus’ work. This is particularly true with the metals and commodity markets. In fact, when I mention that the market delivered a level of clarity this week, I must note that this was chiefly identified by Rambus himself through his world class analysis of the PM charts. Knights this level of analysis is available no where else on the planet. Understand this.

When I mention I am a macro/technical trader my method is to first identify a macro story and then see the story play out in the charts. This requires a form of inter-market analysis and it is so very important to guard oneself against curve fitting. Frankly I see a lot of that going on where one draws lines to fit ones narrative as opposed to being objective to the markets message. One needs to constantly examine himself not to become subject to this. Let’s call this maintaining ones intellectual integrity. I wake up everyday and ask myself if I have it right, it’s not about parading ones views, it’s about making money. When the market delivers its message that one is wrong, one needs to acknowledge it-fix it and then move on to the next trade.

The Average Investor-No Clue

In my “real” job as a wide body Captain, I get paired on a daily basis with middle aged professionals who have money to invest and frankly have no idea what to do with it. The only ones who exhibit a veneer of certainty of what to do can only spout off boiler plate brokerage sales talk. Got to invest for the long term… The market returned 7% a year over the last 100 years…. If you weren’t in the market for the best XX days your returns would be cut in half… on and on, yada yada. But, when one digs a little deeper the average guy is nervous. He knows there is something wrong out there. He has a deep fear there will be another crash and knows he can’t survive it looking down the road towards retirement. But he has been too programed by the Wall Street marketing machine to do anything about it. So when one pulls down the veneer and gets him to open up about his investable assets he will inevitably say “but what else can I do?” In other words he has no skill-set and no clue on how to think for himself. That’s the purpose of this week’s report to lay out a strategy going forward.

Two weeks ago I presented the historical context we find ourselves in. We are in the end phase of a long term credit cycle. The bubble burst in 2008 and since then the central banks of the world have been attempting to reflate it. In other words the FED & CBs have deferred the resolution of the burst bubble into the future and the future is now. Through their QE programs and credit offering they have pulled demand and economic activity from the future to the present. This has not solved the problem of debt saturation it has only shifted its resolution into the future. “Free” money has only deferred failure into the future and made the ultimate resolution more painful due to the gross distortions in the economy as a result of FED and CB policy.

Market activity over the past week continues to validate the narrative set forth in my last column. In bullet format this is what we saw:

* London and Europe displaying topping action in the modeled timeframe of May-June.
* Gold and Silver markets indicating a downside resolution.
*The Gold-Silver ratio indicating a credit contraction, decreasing credit  availability.
*Credit spreads widening.
*Yield curve flattening.
*Commodities resolving to new lows.
*Speculative sector of stock market losing conviction (QQQ).
*Shift from growth to value.

All of these market actions are consistent with the model presented which is formulated from the past five credit  cycles.

Let’s review the dynamics of the model: Towards the mature end of the credit cycle commodities undergo a blow off mania. This mania is typically fueled by wartime demand, however in the past case it was China’s infrastructure buildout. After the bubble bursts speculation flows into financial markets where it finally reaches a frenzy 9 years later which ends the speculation and results in the post bubble contraction process of deleveraging. Debt at the peak of the cycle has grown so large that an economy cannot grow out of it and balance sheets need to get “reset” to start a new cycle of expansion. This all sounds rather antiseptic in such nutshell form, however recall the wrenching process which this entails. In all cases in the past it required a depression to complete the process. Additionally, world wide power shifts and wars are often all part of the process. So it will be a time for all of us to be smart and agile. We have to think for ourselves.

Are the Markets getting ready to crack?

That’s the opportunity, so here is a short term speculative trade to position oneself for it. Note I did not say the bull market is over. I see the market at the cusp of a short term correction or call it a “shake-out” before going on to a final high later this summer. Recall the model has London and Europe peaking in May-June with the US market peaking in September.  This is what happened in 1929 and I believe we are set up for a similar scenario. Not necessarily a dramatic crash but a clearing of excesses we will call it.

Below we see a daily line chart of the 6 months leading into the crash of 1929. Note the market underwent a shakeout in late May before its run to highs in early September. Look specifically at the following indicators during that shakeout.

1.Price found support off the red dotted S&R line.
2.Price found support at the 150 EMA (30 W EMA)
3.Price found support at the 50 Day BB
4.The CCI reached the -150 level (exceeded it)

After the shakeout we underwent a wild short squeeze which developed into an ugly H&S pattern which resolved itself into the crash of 1929 signaling a deflationary economic event coming over the next few years.

Last week I chronicled that the NDX had undergone a weekly outside reversal to the downside associated with a near term selling exhaustion. The last time this occurred was in March 2000 at the peak of the Dot-Com mania. We can see how the NDX and QQQ has now formed a H&S above its S&R line. It does not become valid until the NL is broken, however that’s the trade. I see evidence that this is the shakeout before the final run to an ultimate high in the NDX in late summer as the model calls for.

My preferred vehicle is the 3X QQQ where we can see the confluence of indicators pointing to a potential price objective of around 85. This is the same set-up we saw in the 1929 chart in the shake out before the final blow off top. If the trade evolves as envisioned I will personally reverse positions and go long to try to catch a run to the upside through August.

GSR confirms Bond Market progressing towards a credit contraction.

The Gold-Silver ratio made a significant move upwards this week. The breakout of the triangle pattern forecast a tightening of credit in the fall market clearing season. This week it moved to confirm the forecast by reaching its previous move high. This serves as another key market signal pointing towards a credit contraction in the fall.

The Treasury curve resumed its flattening this week. This is part of the process of moving towards a possible recession. The spread between low grade corporates and treasuries is starting to open which is consistent with the move in the GSR.  Both of these indications is indicative of early stage credit deterioration. Spread widening combined with weak commodities are the ingredients of liquidity problems going forward into the fall months.
The TLT:JNK chart below shows the ratio confirming an uptrend, meaning a move towards credit deterioration.  Note the break above the 30 EMA and positive stochastics.

You Can’t get rich if you don’t have the cash to deploy when great values come along.

This is why I am sitting on a large pile of liquid funds. Note I didn’t say cash because this past week I deployed most of that cash hoard into the government bond market. That’s right, I put my dry powder into bonds. Bonds should strengthen going into the contraction and I will sell when my objectives are met and the great opportunities present themselves. I split the position into two chunks, half into the Wasatch-Hoisington Treasury Fund and half into the TLT.

The Hoisington TF shows great chartology having put in a nice H&S bottom and is now breaking through resistance. It should be clear sailing up to the 18.75 level. This is a long term maturity 20+ year duration fund managed by Van Hoisington and Lacy Hunt.

The TLT is of course 10-year US Govt treasuries. It has put in a nice double bottom and is now above a rising 30 W EMA and into a symmetry zone of no resistance. It’s a good place to just “hang out” with a jumbo-sized war wagon of cash at the ready.

Gold and PM Market- The Master and Commander

After seeing the charts and analysis Rambus has provided us over the past week I can only say-I am not worthy. Through all the false moves and hype of the sector he has stayed firmly at the helm. Master and Commander comes to my mind as he has remained steady on the tiller. I can’t really improve on his PM charts so I will post his with my comments.

Over at the Gold Tent, Electrum posted an article by Peter Brandt about trend lines. In the article he shows where the curve fitters went wrong. He points out the correct criteria for a break through a trend line.. Peter would know as he has been a breakout trader for 40 years.
He summarizes three criteria for a valid break of a trend line:

Penetration– it must close 3% beyond the trend line.
Volume– Did volume rise notably on the penetration?
Strength – Did it just rise to the line then feebly roll over? If it did then any selling pressure
invalidates the move.

Using these criteria let’s review the following Rambus charts:

Rambus’ work over the past week has clearly shown that these patterns have failed in their prolonged back testing phase.  We can see this in his combo chart which I post below:

In addition to his work let’s update my gold market bottoming system where we will see how the market has deteriorated significantly over the past week.

HUI:GOLD- My #1 chart telling me how the stocks are doing compared to the metal. The stocks should outperform the metal in an uptrend and we see the opposite. In fact this week we violated the previous low- Bearish

Silver:Gold– Once a rally gets going silver should outperform gold. Clearly we see a troubled chart- Bearish

Gold:PPI Here we see the 30 W EMA turning back the ratio trend. Again that’s not what we want to see. We want to see input costs reducing relative to the gold price- Bearish

Advanced Decline Line– This has been a mixed bag until this week. It has now tipped its hat to the downside- Bearish.

I am a reformed gold bug, I want to see gold stocks go up, but I also want to buy near the bottom so I am trying to be objective. Remember we are trying to make money here not be cheerleaders. So where could the HUI actually end up? This is where Rambus and I diverge in our views. His charts are extremely compelling and he is also right…anything can happen no matter how shocking. But I am sticking with my original forecast that the HUI will complete its measured move to 135ish and that will be our bottom. It may even come as early as this fall.

If the model plays out and we get a spreading liquidity problem in the fall rest assured the gold stocks will get hammered. This seems counter intuitive to many but consider that gold is bought as insurance so when the disaster hits the insurance is cashed in. In addition the time to clear gold trades is one day less than other assets so it provides emergency liquidity therefore it is sold first. Once gold is sold to cover the initial disaster claims however,  investment demand may increase for gold which should move the gold price up in non-USD currencies.

So the initial credit “hit” could wash out the gold stocks and then they could begin their relentless rise in a post bubble contraction bull market.

The below line chart of the HUI depicts 136 as a measured move PO based off of the H&S top. Note the retracement was exactly a 50% FIB move. Also we see these head tests or bull traps so often in markets, it’s classic.  It’s Mr. Market’s technique of building up selling power by getting the gold bugs all lathered up again and chasing the shorts out of their positions. For the past 5 months we have been building out a 5 point descending triangle. What we see occurring is each time price rallies it is met with overhead supply at a lower price level. Recall the principle that important patterns tend to build themselves out near significant S&R lines. We see it just broke below the extended NL of the original H&S. Also understand that triangle pattern is coiling energy as time progresses. At some point it will break above or below and release that energy in an impulse move. Evidence suggests that the breakout will be to the downside, thus fulfilling the measured move.

The Matterhorn- It may have been just an aggressive back test.

After reviewing Rambus’ work that’s what it appears to have been, an aggressive back test.  The Matterhorn chart shows this and all the machinations of the past 2 years. Here we see a measured move for gold to the 1057 level, which would be a double bottom. Note also the above HUI PO of 136 would be 36 points above its previous low. This would set-up a classic gold stock/gold positive divergence. It would be even more classic if the stocks were to bottom well ahead of the metal.

The USD

Over the past few weeks I have laid out the case for a bottoming USD. The world’s debt bubble needs to be serviced in USDs and the world is short the dollar. Lower oil prices and the decay of the Euro-Dollar system is creating a shortage of US Dollars. For several years now the dollar has been rising in a post bubble contraction. Market moves don’t occur without consolidations and that is what we have been witnessing over the past two years. Over the past week the Dollar has been attempting to build itself a bottom after putting in a TD13 sequential sell. This is constructive and if it can hold the 96.50 level it should be able to complete its bottom within one month. If not a move all the way down to 93 could still be possible. Eventually the dollar should fulfill its measured move to the 120 level once the contraction takes hold within 2 years.

Commodities

Commodity prices continue to deteriorate. The grains are undergoing some basing action, however the broader commodity complex is in decline. We are reviewing this long term chart, yet again, because it is so important.  Again, its the scariest chart on the planet because of its implications.

We have watched the daily chart over the past three months trace out perfect chartology. Bearish rising wedge getting repelled at the 150 EMA then go onto violate the S&R line which has contained price over the past year. The snap back then gets repelled by its now declining 150 EMA. Note that snap back could only survive above its neckline for 4 short days. It’s impulse move is now releasing the pent-up energy of the entire year long retracement. The early May low offered absolutely no support and it looks as though 164 is dead ahead.

Don’t think of this exercise as simply lines on a chart. Consider that the CRB is made up of 40% liquid fuels and oil trades in dollars. Lower oil and commodity prices means fewer dollars in the world. It adds up to emerging markets blowing up in the contraction. This chart is very important and we have not even considered the impact of a rising USD.

Plungers Big Trade- The Oil Short

I picked Oil as my Big Trade because this year oil is the most important economic indicator. It wraps up FED policy errors and economic sensitivity into one trade. Through “free” money the FED has allowed the fracking industry to blossom and flourish my misprizing capital. We are headed towards higher output here in the USA and the frackers have forward sold production at $50 two years into the future. Its time to pump it.

Meanwhile OPEC lives in La La land. Flood the world not with oil, but with propaganda. Whatever it takes to get its Saudi Aramco IPO off next year. So they are actively ceding market share to frackers and OPEC cheaters. Keep in mind OPEC was created for principally one reason to prevent a free market through production quotas. What happens when the free market asserts itself and prices continue to fall while countries have to pay their bills?  One has to put money on the table to keep the lights on and the revolutions at bay. They are going to pump.

At some point OPEC is going to figure out that its jawboning is not influencing the price and all they have accomplished is to cede market share to frackers and OPEC cheaters. At that point what if OPEC decided to announce it was not going to extend the cuts?  Can you picture the bloodbath?  History repeats, this looks like 1985 all over again and we haven’t even talked about a recession.

It is becoming more apparent that OPEC is not able to control the price of oil due to FED money printing. I believe it is inevitable that at some point they will face reality and protect their franchise.

The oil price is mirroring the dynamic of a ball bouncing down a staircase. The conversion of potential energy into kinetic leads to higher and higher bounces. We currently appear to be at a stretched downside point that should soon lead to a upside reversal. The downside is getting pretty exhausted for now be ready to cover soon.

In the big picture chart of oil below consider a recession combined with a reversal of OPEC policy and one should see that this chart may have $25-$30 oil written all over it.

Shift From Momentum to Value

This is another phase shift element included in our market model that we are witnessing. This does not mean value stocks have to go up right away, it simply means they will out perform growth stocks. It is significant that we see this chart reaching extremes right where the model would call for it to occur. What we see here is a trend change clearly in progress. Time for long suffering value investors get their turn at the wheel.

Special Opportunities- Scandium International

It’s no secret I have an institutional sized position in Scandium Intl. Two years ago after a one-on-one conversation with John Kaiser I recognized the revolutionary and scalable opportunity that exists with this concept. John has constantly put this idea out in front of the public in his weekly Howestreet broadcast. The chart below delivers classic Chartology patterns all the way up. Over the past 3 years the 30 W EMA has been in a steady climb upwards. This past week was a great week from a chart perspective. It sliced down through both its 150 & 200 EMA in one single day, however on low volume. The next day however, it reversed the move on 4 times the upside volume. In markets the most important price of the week is the Friday closing price and here we got a weekly bottom hammer with the body above the 30 EMA. Also note the turn up on the weekly stochastic above the all important 20 level.

Weekly OBV and Acc/Dist both in an uptrend. Again a very healthy looking uptrend.

I use the term “special opportunity”  as I think this developmental project can proceed no matter what the market does. It’s a revolutionary concept providing light weight aluminum alloy to industrial production. This same model played out before in the steel alloy Niobium which revolutionized steel production, so we have been there….done that. This is the same thing except it’s for aluminum. This company is working on a USA listing and will soon start coming on the radar of investors.

Gold Junior Exploration

Despite the bearish configuration of the PM sector there is still selective opportunity in the junior space. The focus of the market is on the few projects that are viable at today’s gold price. These are not pie-in-the-sky projects where we need $1600 gold to make them work, these are projects that are economic due to lower input costs right now. I refer you to Spock’s site where he has focused his efforts to track these specific opportunities.

Companies that are in an uptrend that I follow are as follows:

My takeover candidate is Dalradian Resources (DNA.to). This is on the front burner of activity I would expect some action soon.

Other positive configuration companies are :

AAU, SGB.v,HUM.L, KG.v, ATV.v, NHK.v, AUG.to

Finally, my favored micro-cap junior is Sage Gold. The chartology is superb, which is what initially got my attention. The spike up in late May was due to a brokerage house upgrade and now one can position oneself in the stock at pre-upgrade prices. It’s a buy.

Plunger’s Short Corner

I am introducing a new section called Plunger’s short corner.  Yes, I am already short the oil market and the QQQ, however there’s lot’s more opportunity out there.  This week I offer a quick review of the restaurant industry.  Restaurant spending is the ultimate canary in the coal mine indicator.  When times start to get tough and budgets come under strain disposable income directed towards eating out is the first to go.  Spending in this sector typically turns down up to 2 years ahead of a recession.  For the past year we have seen pressure in the industry and the marginal operations are showing it on their charts.  Here are just a few:

That’s right Knights… it’s getting ugly out there.  If any of these stocks has the slightest bounce lay your line on them.

Conclusion

The average investor has little clue of how to operate in markets. He knows little more than to just repeat Wall Street marketing boilerplate. This is why he gets slammed at market turns and rides bear markets down. He can’t think for himself. Over the past 2 weeks we have reviewed the overall context of where we are in the market cycle and this week have put together a plan of action. We are thinking for ourselves.  It has been Plunger’s Strategy session.

This first chart is a 2 hour look at the INDU which broke out of a blue triangle consolidation pattern in late May with a breakout gap and backtest. Today the INDU is testing its all time highs.

As long as the top rail of the triangle consolidation pattern holds support the impulse move should continue.

The SPX shows the breakout from its triangle consolidation pattern in late May. Support continues to be around the 2400 area. Short term traders need to watch the 20 day ema or the 50 day ema as a place to set your sell/stops.

The RUT is still finding resistance at the top rail of its 6 month trading range. A breakout above that top rail, whenever it occurs, will be very bullish for the small caps.

Below is a daily chart for the $COMPQ which shows the bull market uptrend channel began in February of 2016 which is still intact.

The $NYA, which is a good measure for the health of the overall stock markets, is trading at a new all time high today after breakout out of its blue triangle which formed just above the neckline of a very large H&S bottom.

The daily chart for the XLF, financial sector broke out of its blue triangle 4 days ago and is now trading above the right shoulder of the possible H&S top that many are looking for. So far so good.

Keep a close eye on the $BTK, biotech index, as it’s still testing the top rail of a potential bullish rising wedge if the breakout is to the topside.

My goal with the $SOX trade is to ride it up to the 2000 high around the 1300 area, where at that point we could see an important correction take place.

The weekly chart for oil shows it’s close to making a new low since the breakout which is needed to keep the impulse move going.

The daily line chart for the UNG is showing it’s making a lower low currently.