Tonight I would like to update the Basic Materials sector as this area now looks like it’s ready to resume its bull market. Also with the stock markets breaking out today, especially the INDU, this adds another layer of confirmation that the breakout is the real deal. As we’ve discussed previously there are many big cap Dow stocks that make up the XLB, Basic Materials fund, and with the INDU making a new all time high today there will be some individual components making new all time highs as well.

Lets start by looking at a weekly chart for the XLB, Basic Materials fund, that is breaking out of a bullish rising flag this week. This bull flag has been building out since last spring and now the price action is trading into new all time highs. There was a conventional  bull flag that formed between 2015 and 2016 that sloped down. That down sloping black flag started to form after the 7 point bearish rising wedge completed.

This 20 year monthly line chart shows the entire history for the XLB. In 2015 this basic materials fund built out a double bottom which launched the recent impulse move up. That double bottom formed right on top of the multi year support and resistance line.There was a bigger double bottom that formed back in the early 2000’s which launched the bull market.

There is one last point I would like to make on this monthly line chart which compares the 2008 top to the current price action. As you can see the XLB is considerably higher than the 2008 top. If you compare this chart to the HUI, the HUI is still a long ways off from breaking out to a new all time high.

Now lets look at some big cap basic materials stocks that help make up the INDU. This first chart is a monthly look at DD, DuPont, which is trading at a new all time high but still hasn’t broken out above the top rail of it blue expanding triangle. When it does this stock will add a lot of fuel to the INDU’s bull market.

Below is a 20 year chart for DOW, Dow Chemical, which broke out topside of its blue expanding triangle consolidation pattern and is hitting new all time highs.

This next chart is a monthly look at IP, International Paper, which is also trading into new all time highs.

Lets look at some other basic materials stocks that have been showing some strength recently. Last fall I posted this chart for BHP, which was starting to breakout above the neckline of a strongly slanted inverse H&S bottom. This week the price action is trading above the bottom rail extension line taken from the bearish expanding falling wedge.

Another big mining company is RIO which is taking out some overhead resistance this month. Note the breakout from the nearly 9 year blue triangle consolidation pattern and the the old neckline from the unbalanced H&S top. The bulls are starting to take control.

The steel stocks have been doing very well over the last year or so and have been one of the stronger areas in the basic materials sector. Below is the SLX, steel etf, which built out an inverse H&S bottom. Note the two smaller blue consolidation patterns that make up the blue bullish rising wedge separated by the neckline which is usually a bullish setup.

In November of last year NUE, steel company, broke out of a massive triangle consolidation pattern and is currently in backtest mode.

SOIL is a fertilizer company that just broke out from a blue 5 point triangle reversal pattern.

POT is another fertilizer company that is also breaking out from a 5 point triangle reversal pattern.

After breaking out of an almost 1 year black triangle reversal pattern Copper has been chopping out a blue rectangle trading range. Many times during the formation of a rectangle consolidation pattern, after the 4th reversal point is in place, there can be one more small decline which will take the price action down only to the center mid dashed line before the breakout occurs. That just happened over the last week or so.

COPX is a Copper Miners etf which formed an inverse H&S bottom with the red bullish rising wedge as the backtest. It’s currently making a new 2 year high.

These next three stock aren’t in the Basic Materials sector, but are in the natural resource area. Below is a weekly chart for LIT, Lithium etf, which broke out of an inverse H&S bottom 3 weeks ago.

The weekly chart for REMX, Rare Earth etf, is breaking out from a complex H&S bottom this week.

The long term monthly chart for REMX shows its entire history which is comprised of the massive downtrend channel. It’s currently in breakout mode above the top rail.

This last chart for tonight is a weekly look at the URA, uranium etf, which broke out above its double bottom trendline 3 weeks ago on heavy volume.

All these charts tonight show that something of a bullish nature is happening in the basic materials/commodities sectors, that has been a long time coming. These charts also bode well for the INDU which has a lot of these basic materials stocks in its makeup. So as long as the XLB, basic materials index, is making new all time highs then the INDU shouldn’t be to far behind. All the best…Rambus

Lets start by looking at a weekly chart for TLT, 20 year bond etf, which shows it built out a H&S top last summer. That H&S top is a reversal pattern that showed up at the end of its bull market which has been ongoing for many years. There is a big brown shaded support and resistance zone that has been offering support.

This next chart is a 15 year monthly look at the TLT which shows it has built out a four year 5 point bearish rising wedge which broke to the downside in November of last year. If there is a backtest it would come in around the 129.75 area.

TMV is a 3 X short the TLT.

This last chart is a combo chart which has the TLT on top and GLD on the bottom. It’s not a perfect correlation by any means but these two have been moving together pretty consistently over the last year or so. GLD is currently backtesting its neckline and a support and resistance line going back a year and a half or so. If GLD can trade back above the neckline and the S&R line the bulls will be talking to us. To say this is a critical area for GLD is an understatement. Definitely an area to keep a close eye on.

Tonight I would like to update you on the US dollar as it plays such an important role in so many different markets. Getting the big trend right on the US dollar can help you see what areas are affected by the dollar to invest in. There are alot of areas that have an inverse correlation to the dollar, such as commodities and the precious metals in particular.

Let start with just with just a simple daily line chart that shows the two year sideways trading range with the breakout and the backtest that is currently underway. As you can see this is actually the 2nd backtest to the top rail at the 100 area so there is no question the top rail is hot.

This next chart for the US dollar is a daily bar chart which I’ve been showing as a rectangle consolidation pattern. If one were to connect the reversal point, #1 and #3 for the top rail, and reversal points #2 and #4 for the bottom rail, we would have an expanding falling wedge. The top rail would be sloping slightly down just a tad which would help in showing the backtest a little more clearly. The difference between the two would only be about a point or so. A good habit to get into when you see there may be a little morphing of a trendline is to tweak it, because it may be tested again at a later date.

Below is the updated version of the morphing rectangle halfway pattern which shows the nearly 2 year expanding falling wedge.The top rail is almost perfectly horizontal, but to get the backtest price objective right, every fraction of a point helps.

Tonight is the first time I’ve shown this chart to you. Below is a weekly look at the US dollar which shows the blue expanding falling wedge and how it fits into the big picture as a halfway pattern to the upside. I’ve shown you many bull markets that form one consolidation pattern on top of the next, which can go on for years. When a bull market ends there is usually a recognizable reversal pattern that will build out which will signal a trend change. As long as the top rail of the blue expanding falling wedge holds support we have a consolidation pattern in place. Until the price action takes out the top rail to the downside we have a consolidation pattern, not a reversal pattern.

Note the H&S consolidation pattern that formed on the right side of the blue consolidation pattern which should give the US dollar the energy it needs to have a successful breakout and impulse move to the upside. After the neckline breakout and the initial breakout above the top rail of the blue expanding falling wedge, the price action backtested the neckline with a nice long daily reversal bar. This week the US dollar is backtesting the top rail of the blue expanding falling wedge. The symmetry of the bigger H&S shows the neckline symmetry line which is parallel to the neckline that showed us the low for the right shoulder.

If the US dollar is in a bull market on an intermediate term bases it should make higher highs and higher lows which creates an uptrend. Note how many touches the bottom rail of the major uptrend channel has which tells us it’s an important trendline. You can do the same thing with the top rail which shows about 4 touches. Also, as you can see the major uptrend channel is not parallel, but more of a rising wedge formation with still a lot of overhead room for the US dollar to move higher.

That brings me up to the measured move for the blue expanding falling wedge halfway pattern. The first price objection is measured from the last reversal point in the blue triangle pattern at the bottom of the chart to the first reversal point in the blue expanding falling wedge. That distance is taken and added to the 4th reversal point in the blue expanding falling wedge to get a price objective up to the 113 area, as shown by the blue arrows, and is called an impulse measured move.

The second measured move is taken from the breakout point from the blue triangle to the first reversal point on the blue expanding falling wedge. That distance is then taken and added to the breakout point of the blue expanding falling wedge which gives us a second price objective up to the 117.30 area. This is called the breakout to breakout measured move. This is on a linear scale chart.

This next chart is a log scale weekly look at the US dollar which gives us a little higher price objectives based on the two measured move techniques. If one was to look at the price action since the 2011 low and you didn’t know what stock you were looking at you would most likely think that this stock is in a beautiful uptrend.

This next chart is a 35 year monthly look which shows the two big fractal bases labeled big base #1, and big base #2. Back in the late 1990’s when the US dollar broke out of big base #1 it formed the blue bullish rising wedge as a halfway pattern. That backtest to the top rail took three full months to complete before the second impulse move took off. If our current blue halfway pattern plays out it will have a price objective up to the 120 area which is about as high as the the 2000 bull market high. At that point we can look for another consolidation pattern to start building out if the US dollar is in a strong secular bull market. If this rally is like the last major impulse move up out of big base #1 then we should see some type of reversal pattern build out similar to what we saw at the 2000 high. That H&S top in 2000 built the foundation for gold’s bull market to follow, which lasted close to 11 years.

Again, if the US dollar is in a secular bull market then it will most likely have a negative impact on commodities and the precious metals complex. For those members that were with us during the strong impulse move up out of big base #2 you will remember what that did to commodities, the precious metals complex and most of the important currencies of the world. With that said I’m paying especially close attention to the commodities indexes for any sign of failure. The chart for the $WTIC I posted earlier today is a good example of to watch for. The price action will let us know of its intentions if we can keep an open mind. It is what it is until it isn’t. All the best…Rambus

After breaking out from the large blue triangle the $WTIC has been in backtest mode since early December. So far the 52 area has been holding support with several touches from the topside. Normally when a pattern is strong the backtest will come quickly and the impulse move will begin in earnest. For almost 2 months now the backtest is laboring with the impulse move failing to take off. I’m viewing this as a warning sign at the moment.

This next daily chart for oil shows what the breakout and backtest looks like from another perspective. The price action above the top rail on the blue triangle above, is showing a possible H&S top building out. If I adjust the top rail of the black uptrend channel on the weekly chart above, to the top of the potential H&S top we get a bearish rising wedge which has completed three reversal points so far with the H&S top being the start of the fourth reversal point to the downside. In big consolidation patterns there is usually some type of reversal pattern at the reversal points. If the neckline gets broken to the downside that will be a big clue that the bearish rising wedge is in fact a consolidation pattern and the blue triangle not a continuation pattern. A breakout below the bottom rail of the potential bearish rising wedge will be confirmation oil is going back down to the 2016 low.

This next chart is a long term daily look at oil which puts the potential bearish rising wedge in perspective. Keep in mind the minimum price objective for a wedge is to the first reversal point which in this case would be the 2016 low.

If oil is truly building out a bearish rising wedge what is that telling us about commodities in general and the US dollar?  I know most have given up on a bullish outcome for the US dollar which may be correct. Tonight in the Wednesday Report I’m going to post some charts on the US dollar that you haven’t seen yet. The US dollar is probably the most important chart to watch as it plays such a big role in many different markets.

The GLD has finally arrived to the big gap area made on the way down. This morning it officially closed the gap at 115. Now we see what happens.

Below is a five year weekly chart for the GDX which shows the reverse symmetry gap made back in 2013. If you recall I was speculating at the time on what would we see when the GDX traded back up to the gap area last summer. Would the price action gap over it and just keep going up or would it hold resistance, or just bounce around for awhile and then take it out? The gap area held resistance for about six weeks before the bulls gave up and the GDX began the correction.

Today the HUI is attempting to backtest the top rail of the downtrend channel, trying to close the  breakout gap, with the 50 day ma coming in at the 187 area. So far this  normal price action after the breakout as long as the top rail holds support. If it fails it will be a warning shot across the bow that the bulls might not be as strong as they appear.

In part 2 of this Weekend Report we’ll take an indepth look at gold and especially the long term view. Again, this is just for entertainment purposes only until gold can close below a very important trendline. I’ve been following this potential scenario since shortly after the US elections. Up until the elections this pattern I’m about to show you didn’t show its self, but now it’s one of the most important chart patterns for gold that I’ve posted in several years. As we discussed in part 1 , please read forward with an open mind regardless of what other information you re processing and what your current expectations are. This is an exercise in my preferred method of Technical Analysis , Chartology.

Again, this is an exercise in a “Potential”  big picture scenario  which has a strong basis in Chartology . It is not a prognostication at this time , but is an important scenario to keep in mind. At the moment there is a rally in the Gold sector and we are short term bullish .

There are three daily charts we’ll look at first, which are reversal patterns that formed at a very critical spot on the long term charts.

I’m going to start with a few daily charts and then work our way back in time to see the big picture. This first chart for gold shows the H&S top which we’ve been following on the PM combo chart that I post several times a week. This H&S top is an unbalanced H&S top with two left shoulders and one right shoulder. Note how the moving averages are crossing to the downside with the 20 and 50 day moving average now having crossed below the all important 300 day moving average. In the not so distance future, if gold keeps dropping, the 150 day will cross below the 300 day ma which will be a long term sell signal.

This second daily chart shows the seven point diamond reversal pattern we looked at shortly after the price action broke below the bottom rail. The seventh reversal point formed on the night of the US elections which put the diamond back into the reversal pattern category as it has an odd number of reversal points. It looks like gold is trying to rally as the decline out of the diamond reversal pattern has been pretty severe. It will be interesting to see how high a bounce may go and if gold starts building out some type of consolidation pattern.

This next daily chart for gold is probably the most important chart for the big picture. This chart shows a bearish rising wedge which began to build out one year ago at the December low. Most folks think this was the beginning of a new bull market, but the bearish rising wedge has strong overtones of a bear market rally. The price objective of a rising or falling wedge is where the wedge begins to build out or the first reversal point. This would be a minimum price objective as prices can go much lower. The top half of the bearish rising wedge is the H&S and the diamond tops we looked at on the charts above. The important moving averages are looking very weak at this point in time.

In part one of this Weekend Report we looked at the morphing process for two important H&S tops on the HUI. This next chart for gold is a long term monthly look which shows the original H&S top I showed you back in 2013 or so. The 2008 H&S consolidation pattern is what setup the neckline that stretches all the way to the left hand side of the chart, as shown by the neckline extension line.

Note the beautiful symmetry as shown by the neckline symmetry line which shows the high for the left and right shoulders. Back in 2014 the price action broke below the neckline and it looked like the H&S top was complete when the backtest took place. Gold dropped into last years December low and rallied backup to the neckline again in a second backtest which so far is holding resistance telling us the neckline is still hot.

As you can see the price objective for the H&S top is down to the 2008 crash low as shown by the brown shaded S&R zone. If gold takes out the December 2015 low it will be creating a lower low, which is not bull market action. So the 1040 area now becomes important support for the big picture.

This next weekly chart focuses in on the shorter term look which shows how gold may be morphing into its own double H&S top. Neckline #1 is shown by the weekly chart above. Neckline #2 is taken from the 2008 bullish expanding falling wedge bottom which is creating the left shoulder. The right shoulder is built from the bearish rising wedge we looked at on the daily chart earlier. Now you can see why the bearish rising wedge is playing such an important role in the big picture.

Note the beautiful symmetry just above neckline #1 which shows gold building out the bullish rising wedge on its way to the bull market high at 1920, and the blue six point  triangle consolidation pattern that formed on top of neckline #2 just before gold broke down.

Since I became aware of the potential double H&S top, I always showed the bull market top as a small double top, with the six point rectangle formation building out just below the double top as a consolidation pattern. What I’ve been contemplating recently is how the 2011 top fits into the big picture as the head. A reversal pattern consists of an odd number of reversal points 3, 5, 7 or more. It’s apparent that the 2011 top is a reversal pattern. During gold’s last strong move up in its parabolic run to its all time high at 2011, the price action above the top rail of the six point rectangle consolidation pattern was most likely a throw over or a final capitulation move. We can label the bull market top as a seven point rectangle reversal pattern if we use the capitulation throw over as the seventh reversal point.

This chart also shows why neckline #2 is so critical to the very big picture. As you can see if big neckline #2 gives way, gold will have created a massive H&S top. It looks like 1100 is going to be the magic number that is going to tell us if gold is truly in a bear market that began at the 2011 high. As long as gold can trade above 1100 it will have a positive basis and the massive double H&S top will be negated. On the other hand if gold breaks below the 1100 area then the odds increase very dramatically that gold has been in a bear market since 2011 with a long way to go to the downside before the bear market exhausts itself.

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.

This next chart is a weekly line chart which shows the reverse symmetry patterns for the left and right shoulders. Note how the left shoulder formed a combo H&S consolidation pattern along with the bullish expanding falling wedge. Now look over to the right shoulder and you can see the H&S top with the blue bearish rising wedge. The blue arrows show how gold has been reversing symmetry back down vs how it went up. It’s not a perfect correlation but close enough.

Below is a shorter term weekly chart showing the double H&S top in more detail.

Now, on to the monthly bar chart which shows the parabolic bull market and the strongly slanted H&S top. Again, you can see how the 1100 area is going to be our line in the sand, which will have long term consequences if it the price action breaks below that now very important neckline.

This next monthly line chart for gold has just one trendline, which is the neckline.

This last chart for tonight is a long term monthly look that goes back 50 years and is pretty self explanatory.

We like to think of ourselves as not being part of the herd, but it’s very difficult not to be. With all the information we absorb everyday it’s bound to affect us in ways we don’t understand. If this massive H&S top plays out you’ll be some of the first PM investors that will understand what is really taking place in the precious metals complex. The bottom line is that if the 1100 area at neckline #2 gives way a major long term top will be in place, and big patterns equals big moves. All the best…Rambus

I actually wrote this post yesterday but got busy and forgot to post it.

The $WTIC is still in the process of breaking out and backtesting top rail of the blue morphing triangle consolidation pattern which is also the possible neckline of an unbalanced H&S bottom. I wouldn’t like to see the price action take out the previous lows made earlier this month.

This next chart is a longer term weekly look which shows the possible unbalanced inverse H&S bottom with the blue morphing triangle forming the right shoulder. You can see from the size of the base oil can have a pretty big move to the upside. The bigger the base the bigger the move.

About three weeks ago the XLE broke out of a 10 point bullish rising flag on a nice increase in volume. It’s important for the top rail to hold support if there is a backtest at the 73.60 area.

The OIH weekly chart.

Buckle Up ,Pour yourself your favorite beverage , and take some time . This Report will be an in depth Chartology analysis of  the current situation in this ever interesting and often exasperating market we are participating in. Oh and don’t forget to open your mind. Lets begin.

I would like to start the Weekend Report by looking at a combo chart which has the US dollar on top and gold on the bottom, which shows you a better version of the positive divergence the US dollar had vs gold in 2011. First note the red arrows on the US dollar and gold back in 2008 when gold was making a high, and the US dollar was making a low, which is what you would expect. Now look at the two red arrows in 2011 whch shows the all time high for gold and a higher low for the US dollar vs the 2008 low. Gold rallied almost 1200 points to its 2011 bull market high, but the US dollar made a higher low. If they were on an equal footing the US dollar should have traded much lower when gold was making its all time high. That’s how I viewed the positive divergence for the US dollar vs gold.

The blue arrows on the US dollar chart on top shows how I was, and still am looking for reverse symmetry to the upside based on how the dollar came down when it started its bear market in 2000.

The two heavy black dashed horizontal lines on the gold chart at the bottom are still original from when I built this chart. I have adjusted the downtrend channel, and what was the falling wedge, I’m now annotating it as a bearish expanding falling wedge. During the construction of the original three year falling wedge I always labeled it as a bearish falling wedge and thought it would eventually breakout to the downside until last year at this time.

You can see the original falling wedge when you look at the mid dashed line of the downtrend channel, and the bottom rail of the blue expanding falling wedge. There is no doubt that the S&R line at 1040 did indeed hold support after being tested several times from above. That rally took the price action up to the top rail of the downtrend channel and the top rail of the blue expanding falling wedge, which looks obvious now. It was that H&S top on gold we’ve been following since the US elections, which was the frosting on the cake in showing a reversal pattern at that critical juncture.

One last note on this combo chart. As you can see the US dollar is breaking out to new highs, while gold has failed to take out the 1040 area. What I’ll be watching very carefully as the US dollar continues to make new highs, is that we should see gold take out the 1040 low for more confirmation, gold is still in its 2011 bear market.

This next chart for the US dollar is a daily line chart which shows the rectangle with four completed reversal points with a breakout and backtest to the top rail. To negate the breakout we would have to see the dollar trade below the top rail on a daily closing basis, until then the breakout is valid.

This next chart focuses on the impulse move up in the US dollar that began in mid 2014. I ended the time for this chart to April of this year so you could see the big impulse move up more clearly. This chart shows you exactly what a strong impulse move looks like by forming one consolidation pattern on top of the next. Note the beautiful black bullish rising wedge which formed in the middle of that big impulse move, that was made up of two smaller consolidation patterns. There was a breakout gap above the top rail with a nice clean backtest which confirmed the black rising wedge was a bullish rising wedge. There is a strong possibility that we may see something similar to this impulse leg up in our current leg up.

This next chart for the US dollar is a forty year look we’ve been following for a very long time which shows the massive bullish falling wedge. Note how the blue rectangle has formed as the backtest to the top rail of the bullish falling wedge, and the neckline extension rail that formed that massive 2000 H&S top. What actually led to the breakout from that 40 year bullish rising wedge was when big base #2 finally matured and broke out. What is hard to even imagine right now is that the price objective of that 40 year bullish falling wedge is to where it began to build out, which is all the way up to 160 back in 1985. It will take many years for the US dollar to reach that price objective, and what will it mean for everything that is affected by the US dollar.

This next chart is a combo chart which has the US dollar on top and the SPX on the bottom. This chart shows how the US dollar and the SPX rose together during the last five years of the bull market that ended in 2000. Not so much on the SPX, but on many other index charts I always viewed the rally from 1995 to the 2000 top as the runaway or acceleration move into the bull market top, which is how most bull markets end.

Below is another combo chart which has the US dollar on top and gold on the bottom. I built out this combo chart right after the US elections as something dramatically had changed. The US dollar still hadn’t broken out yet and gold was still trading at the top rail of its downtrend channel, but in just six weeks or so you can see how things have really changed for these two.

This next chart is the gold to US dollar ratio chart whch shows that H&S top forming right at the 2016 high just below the top rail of the downtrend channel. That is the same area on the gold chart above, which is reversal point #3, top of the blue bearish rising wedge.

Next I’m going to bring out some old charts we haven’t looked at since the bear market years. This first chart is a daily chart for gold that shows one of the most symmetrical H&S consolidation patterns I’ve ever built out. I won’t get into the details as it’s explained in the annotation box. What is most important about this chart, other than its symmetry, is the heavy dashed black neckline. That neckline played a key role several years later as some of the longer term members may remember. After the top was finally put in at the 1920 area I was looking for a big correction, or even a bear market to begin building out. There is an old saying in Chartology, that an important trendline never dies it just slowly fades away, which I’ll show you in a bit.

Here is the long term monthly chart for gold I first built out in 2013 right after gold bounced off the neckline symmetry line which is taken from the chart above, and extended out in time to the right. There is some really nice Chartology on this chart starting with the neckline symmetry line which showed us the high for the right shoulder which is taken from the massive 2008 neckline extension line. What also happened at the right shoulder high in 2013 was the classic backtest to the underside of the bottom rail of the the expanding bull market uptrend channel.

Gold chopped around on top of the neckline extension line for close to a year creating the right shoulder before it finally broke to the downside in 2014 completing the right shoulder. There was a fairly strong backtest from below to the 2008 neckline extension line, but gold quickly broke below the neckline again, and began to decline in earnest right into last years December low.

I have to admit that I didn’t really think gold was starting a brand new bull market but I had no choice but to go with the rally. I was firmly in the bear camp but when the HUI and other PM stock indexes were showing bottoming patterns there was the possibility that maybe the PM complex had bottomed and was beginning a new bull market. Note the second backtest to the neckline, which occurred this past August. Again, it was a fairly strong backtest, but that is the place where the H&S top and the diamond reversal pattern formed, which is another big clue the second backtest would be successful. That price objective has been on this chart since the middle of 2014 which is down to the 685 area which also coincides with the 2008 crash low. More confirmation that gold is headed to its H&S price objective down at the 685 area will be when we see it trade below its previous low at 1040 or so.

Below is just a simple uncluttered look at the massive H&S top.

This next chart is one we haven’t looked at in a very long time, which is the fanline chart for gold going all the way back to the beginning of the bull market in 2000. The rule of thumb for fanlines is that once they are broken to the downside you generally will have a backtest to the underside before prices break lower again. The other rule of thumb for the fanline pattern is that once the third fanline gives way the pattern is complete. Note the backtest to the underside of fanline #2, which you can see on this long term monthly chart, which is the H&S and diamond reversal patterns on the daily chart that formed that backtest.

As you can see fanline #3 is just starting to break down so don’t be surprised if we see a backtest to the underside at some point in time. If we do then it will represent a very low risk entry point to go short with a close above the fanline as your exit point.

If gold is building out a massive H&S top then we should see something similar with silver. Again here is an old chart I pulled out from the past that is still relevant. Just like gold, silver to has built out a massive H&S top that shows some nice symmetry using the neckline symmetry line to find the high for the right shoulder. Actually, silver had a cleaner backtest to the underside of the massive neckline this summer than gold.

Below is a 20 year monthly chart for silver which shows the massive H&S top and the price objective down to the 6.25 area. The first real area of support should come in around the brown shaded support and resistance zone. Keep in mind the neckline and neckline symmetry rail were put on this chart back in 2014. I should have been paying closer attention, but with everything at major inflection points it’s hard to keep track of everything to the letter. The main thing is that this next impulse leg down is really just getting started. A break below the 2015 low will be more confirmation the downtrend continues.

This last chart for silver is a 45 year monthly chart which shows the massive inverse H&S bottom that led to silver’s bull market all the way up to its 1980 high at $50. You can see the clean breakout and backtest to the neckline from our current H&S top, as shown on the charts above. I extended the neckline out in time to the right hand side of the chart which would be the first real logical area of support at the 7.65 area.

Next lets look at some ratio charts to see what they may be telling us. This first ratio chart compares gold to the CRB index. The last time we looked at this chart it was just breaking down from the five point triangle reversal pattern. This chart suggests gold is going to under perform commodities for awhile.

Below is a 50 year monthly line chart for the gold to CRB index which is showing the ratio has put in a double top at the very top of the five year blue expanding rising wedge. It looks like this ratio won’t find support until it hits the bottom rail around the 4.50 area. Keep in mind this is a very long term chart.

I know some folks think that very large consolidation patterns don’t work, or are useless. This fifty year chart shows a 25 year bullish falling wedge as a halfway pattern to the upside. Also note how gold has been outperforming the CRB index since the last low in the bullish falling wedge. It might be time to see the CRB index really start to outperform gold now, for an extended period of time.

This next chart is a ratio combo chart which has the INDU to gold ratio on top, and gold on the bottom. Since the US election the ratio chart on top has broken out and made a new high for this move. Gold on the bottom chart shows that H&S top which has been showing up in so many different areas in the PM complex. Since the low in 2011 on both the ratio chart and gold, the INDU has been outperforming gold in a pretty big way.

Below is a 35 year ratio chart that compares gold to the INDU. This ratio is just now breaking out from a large H&S bottom. Note how once the big trend gets established it can run for many years. In the 1990’s the INDU was the place to be. From 2000 to 2011 gold was the place to be invested. Many thought this ratio would drop all the way down to 1 to 1, like it did in 1980 when gold was at 850 and so was the INDU. As you can see the ratio only made it down to 5.5 this cycle.

Earlier this week we looked at this long term ratio chart which compares the XEU to the US dollar. The last time we looked the ratio was sitting right on the bottom rail of the blue expanding triangle, but as you can see it is now trading below that very important bottom rail. As this is a monthly chart I would like to see the ratio trading below the bottom rail by months end.

The XJY to the US dollar ratio chart is showing the price action fast approaching its massive neckline.

Also earlier this week we looked at the XSF to the US dollar trading right on its massive neckline, which now shows the price action working its way lower. Is it just a coincidence that these currency pairs are all testing their major long term necklines while the US dollar breaking out of an important consolidation pattern?

I would like to finish up by looking at some charts for the HUI starting with this long term weekly fanline chart which goes back to the 2000 low. You can see there were H&S tops that built out just above fanline #1 and #2 which suggested the fanlines would would give way.

Fanline #3 is interesting as it built out the blue triangle consolidation pattern which gave the HUI the energy it needed to break the fanline. Shortly after the breakout from fanline #3 the HUI built out a small H&S top just below it, which suggested the fanline pattern was complete, and the decline would ensue. The HUI did indeed decline all the way down to the January low this year where it put in a double bottom. The rally out of the January low was very impressive and it looked like a brand new bull market was just beginning, which most believe is the case today.

There is one really big issue the HUI has to overcome and that is to trade above fanline #3 to confirm the bull market is real, and this wasn’t just a bear market rally. As you can see the price action hit fanline #3 for the second time back in August of this year and built out a second H&S top just below it. Keep in mind that H&S top is a reversal pattern that is reversing the bull run out of the January low. The double bottom at the January low was a reversal pattern that reversed that last leg down in the bear market.

Below is just a simple weekly line chart for the HUI which shows the massive H&S top which reversed the secular bull market and the two smaller H&S top we looked at on the fanline chart above.

Some of you may remember when I posted this weekly chart for the HUI shortly after it broke back down below the all important 2013 support and resistance line. The black arrows shows how it held resistance for several years and then was finally broken to the upside during this years rally. Shortly after the S&R line was broken to the upside earlier this year it had a clean backtest and all seemed right with the world regarding the HUI and the precious metals stocks in general. The little brown shaded area shows where I thought we would see good support come in just like the last time. We did get a little support but the rally wasn’t very strong and built out the right shoulder for the H&S top.

I mentioned several weeks or so ago, when the 2013 S&R line gave way and the HUI was trading below it, that we could now see a backtest to the underside because it’s a support and resistance line, above is bullish and below is bearish. As you can see it held resistance for the last six weeks and now the HUI is starting to fall away. The HUI also failed to trade above the top rail of the blue expanding triangle bottom reversal pattern extension line.

This next chart is a long term monthly look at the HUI which again shows its massive H&S top and the bear market that followed. This chart shows why it’s important to recognize reversal patterns as soon as they become clear. Note the double bottom which looked like it was the bear market low because it’s a reversal pattern and the price action did indeed reverse back to the upside. Now however you can see the H&S top that built out and is now reversing the uptrend to a downtrend.  What this is doing is creating a very large trading range between 100 on the bottom and 285 at the top. There is no law that says the HUI has to trade all the way down to 100. If the price action makes a higher low that the January low a triangle could develop, but that’s getting to far ahead of ourselves.

These last couple of charts for the HUI are daily charts which I think have a possibility of playing. If you’ve been following the HUI you will know it has put in a series of three small consolidation pattern since topping out in August of this year. These three consolidation patterns have built out a fairly parallel downtrend channel as shown on the chart below.

In fast moving conditions, which I think the PM complex is in right now to the downside, there are a couple of things that can happen. In the case for the HUI I think if the bottom rail of the current downtrend channel is broken to the downside we will see a doubling of the upper channel as shown by the black rectangle measuring sticks. The current bottom rail of the downtrend channel would be the mid dashed line on this chart below, which shows what a doubling of the upper channel would look like. To set this possible scenario in play would be to see the HUI break below the dashed midline in a fairly convincing fashion.

Again if the PM complex is in a strong impulse move down this last chart for tonight shows a possible bearish falling wedge on gold. We should get our answer to this question in the next few days.

What I tried to do tonight is paint a picture of the long term status for the PM complex based on chart patterns, currencies pairs, ratio charts and combo charts, coming from many different areas. What all these charts above are strongly suggesting to me is that the rally out of the January low, made this year, was a bear market rally and not the start of a new bull market for the precious metals complex. I know this is a hard pill to swallow but until the bulls can start showing some strength, the bears seem to be in charge. Keeping ones trading capital safe is more important than anything else when it comes to the markets. There will be many more trades if one has the capital to take advantage of the situation when the time comes. This trade in the PM complex started out very good this year, and a good time was had by all. Knowing when to leave the party can be a totally different scenario.

I have to go back down to Little Rock today so I’ll be out of the office on Monday. All the best…Rambus