The moment of truth has arrived for the $GDM. Is the small possible double bottom at the 62% retrace at the 560 area going to hold support and start the next reversal rally backup toward the 875 area, or is the potential H&S top reversing the big move up out of the January low? The 50 day ma has just recently crossed below the 200 day ma. For those that believe the double bottom and the 62% retrace is going to hold, this is a very low risk setup to go long putting your sell/stop, to your own risk tolerance, below the 62% retrace.

We started to follow this energy sector etf very closely at the fifth reversal point in its rising flag formation. Today it’s completing the tenth reversal point putting this rising flag back into the consolidation pattern to the upside category. There is still no breakout but it would be very bullish the energy sector if it was to breakout to the upside.

The weekly look:

The weekly chart for the OIH shows a sideways trading range that is attempting to breakout today.

For the last two weeks, since the US elections, we’ve been discussing the possibility of  strong inflection points building out on many different areas of the markets. These are areas where the markets can turn on a dime leaving those folks looking one way while the markets go the opposite way. Important inflection points are more of a price thing than a time thing. An inflection point can last days or weeks before they finally resolve themselves.

Lets start by looking at the US dollar, as it plays such a key role in so many markets. Below is a three year daily chart which shows its major impulse leg up out of the mid 2014 low, and topped out in the spring of 2015. For just under two years the US dollar has been chopping out a sideways trading range, rectangle consolidation pattern, and closed above the top rail this week. The breakout is not actually confirmed yet as the price action would have to close above the 103 area and then a backtest to the top rail around 100 would have to hold. For the time being, we have to give the benefit of a doubt, to the US dollar bulls until proven otherwise.

There is one thing I would like you to show you before we move on and that is the backtest to the neckline, which occurred during the US elections. That sharp reversal off the neckline needs to be respected, as that spike shows up in other areas of the markets.

I’m going to skip over the longer term charts for the $USD, as we have been following them pretty closely. There are two other proxy’s for the $USD I would like to show you which may be giving us some confirmation the breakout may be the real thing. Below is a weekly chart for the UUP, which shows its sideways trading range as a bull flag. Note the big breakout gap that occurred last week on heavy volume. A backtest to the top rail would come in around the 25.75 area, which should be expected but not required.

This next chart for the UUP is a longer term weekly look, which puts the bull flag in perspective. Again, if the UUP is truly breaking out in its next impulse leg up then we should see the backtest hold support at the top rail at 25.75. We have a very clean line in the sand, above the top rail is bullish and below is bearish.

The USDU is another index I like to track for the US dollar. The USDU has a more equal weighting than the $USD. This proxy for the USD actually broke out of a six point diamond consolidation pattern about eight weeks ago. Note how the 30 week ema has done a good job of showing us where support and resistance comes into play. To really confirm the next impulse leg up is truly underway, we’ll need to see the price action takeout the old high at reversal point #3. As the charts above show, this is the strongest the US dollar has been since the beginning of the last impulse leg up in the summer of 2014.

Keeping these US dollar charts in the back of your mind I would like to show you what I think may be happening in the precious metals complex. First, I’m fully aware that the PM complex and the US dollar can rise in tandem for short periods of time, but in a general sense they pretty much move opposite to each other. As I have stated many times in the past, “the only rule in the markets is, there are no rules.” This is an important concept to understand. It means there are no guarantees of what may have worked previously will work again.

This next statement may sound a bit counter intuitive, but one has to have a game plan, right or wrong, in which to invest in the markets. As long as ones game plan keeps working you stay the course, but when you start to see things develop that shouldn’t be, then you have to reassess the situation with an open mind and figure out why the original game plan is not working as it should. This can be one of the toughest parts of trading, knowing when something might not be working out as originally expected. One has to be totally honest with themselves in order to see the charts for what they may be showing. It’s easy to sweep the dirt under a rug but that doesn’t solve the problem it just masks the problem, so keeping an open mind is critical in understanding what a chart may be showing you.

Now that we have that out of the way lets look at some charts for gold, which hasn’t been behaving very well lately. Last week we looked at the important moving averages chart, which as of Thursday shows gold is now trading below all the moving averages including the 300 day moving average. It’s not the end of the world but it does throw up a red flag as the 300 day moving average has done an excellent job of holding support during the bull markets years.

Less than two weeks ago, before the US elections, gold along with the rest of the PM complex looked fairly healthy, but that now looks deceptive. Below is a daily chart for gold which shows a black bearish rising wedge. You can see the initial breakdown was pretty strong, but on the night of the elections gold put on one of the biggest rallies in years, which we can now see was a backtest to the underside of the black bearish rising wedge. That is the same spike we looked at on the US dollar chart. You can see the 50 day ma has already crossed below the 150 day ma, and is close to breaking below the 200 day ma. This is not what you want to see during an impulse leg up. Also, gold has now closed two days in a row below the 300 day moving average, which is definitely something you don’t want to see during a bull market.

This next long term daily chart for gold shows a possible horizontal trading range that may develop between 1370 and 1185 to match the left side of the chart. There is one issue with that scenario. The price objective for the bearish rising wedge would measure down to the beginning of the bearish rising wedge, which would put gold at the December 2015 low at 1050 or so.

As we move further out in time by looking at the eight year weekly chart for gold you can see how the bearish rising wedge fits into the big picture. On the positive side there is the top rail of the three year falling wedge, which comes into play at the 1165 area. Gold also broke below the 65 week ema which usually does a good job of holding support during a bull market. Also note the indicators at the bottom of the chart, which are starting to roll over.

I’m going to start putting the pieces of the puzzle together by looking at this next weekly chart for gold which begins to show you a potential bearish setup taking place if the 1185 area fails to hold support. Note the top rail of the bear market downtrend line that began to form in September of 2011. What makes that top rail so compelling is the way the price action interacted with it, just before and right after the US elections. I’ve shown you on the daily combo chart for the PM complex the possible H&S tops that may be forming. I don’t show it on this chart, but the potential H&S top would be forming just below the top rail of the downtrend line, which is another reversal pattern forming at a most critical place. Some of you may be starting to see a potentially very large pattern developing, which I don’t believe anyone else sees yet.

I’ve been showing you this next chart for gold’s bear market since the 2011 top which shows an expanding falling wedge. Inside the expanding falling wedge is a rectangle consolidation pattern toward the top of the chart, and the seven point bullish falling wedge reversal pattern at the bottom of the chart. Up until the US elections everything looked fine with a backtest to the top rail at 1240 in place. As you can see, the price action closed out the week below that important top rail, which is not what I wanted to see at this point in time. Until last Thursday it looked like the top rail was going to hold support, but that day marked the break below the top rail and the 300 day moving average, which has to make one question what’s going on.

We are now at the point where we have to be honest with ourselves and put away all our preconceived notions of what we believe is really taking place in the PM complex. As they say, “honesty is the best policy.”  Believe me I don’t like this next chart anymore than anyone else but the potential is there for one more move lower in gold”s bear market. When you look at the Chartology of the black falling wedge it begins to make some sense. A move to the bottom rail would come in around 975 which would create panic in the bull camp, and euphoria in the bear camp. It would also complete the all important fourth reversal point which is needed to create a consolidation pattern. Gold will still be in a bull market with a slightly different consolidation pattern. Note the price action at reversal point #3 with the hit at the top rail, and the breakout below the bottom rail of the blue rising wedge we looked at earlier. The inflection point is the backtest to the blue rising wedge that was made on election night.

This next chart is a long term monthly look at gold which shows its bull market uptrend channel we’ve been following that is still in play, as long as the bottom rail holds support at the 1125 area. There is still a week and a half to trade this month but for the moment gold is trading under its 10 month ema, which is a negative.

The potential negative looking charts above are predicated on a strong US dollar breaking out of its year and a half trading range. Below is a ratio chart which compares gold to the US dollar. When the ratio is rising gold is outperforming the US dollar and vice versa. You can see this ratio topped out in 2011 along with the rest of the PM complex and has been building out a parallel downtrend channel. Note the small H&S top which just broke down last week. That was bearish.

Below is a ratio combo chart with the INDU:GOLD on top and gold on the bottom. This chart shows how these two tend to move opposite to each other, not always but in general. Note the big breakout gap that occurred less that two weeks ago on the ratio chart on top, and how gold broke below its neckline at the same time. Was that just a coincidence? I doubt it.

I have many more charts I could post to make a case for caution ahead in the PM complex. It’s not what I want that matters, it’s what the PM complex wants that matters. There is no doubt that the price action since the August highs in the PM complex has stumped most trading disciplines. Sometimes the markets are tough to trade but having a game plan to follow is critical in understanding what to do, right or wrong. Up until two weeks ago the PM complex looked like it was ready to move higher right after the elections, but the price action has shown us a potential different scenario, which we need to heed.

This last chart for tonight is a combo chart which puts everything in perspective. On top is the USD and on the bottom is GOLD. I’m not going to argue with what this combo chart is strongly suggesting, which is that the US dollar is breaking out from a big rectangle consolidation pattern, and gold is breaking down from the top rail of a, what we can still call, a bullish falling wedge. I know this Weekend Report isn’t what everyone wants to see but it’s an honest opinion of what may take place over the coming weeks. All the best…Rambus

One of the most important charts on the planet is the US dollar as it has such a big impact on many different areas in the markets. This week the US dollar hit a new high and closed above the top rail of its sideways trading range. A true breakout is generally confirmed when the price action closes at least 3% above the top rail of a consolidation or reversal pattern.

I expect to see some backing and filling above the top rail of the black rectangle and if the breakout is going to be valid the top rail of the rectangle consolidation shouldn’t be violated by very much. The setup is there for the rectangle consolidation pattern to be a halfway pattern to the upside measured from the May 2014 low.

There are a lot of pieces of the puzzle I’m going to try and put together in the Weekend Report to show how these possible inflection points, we’ve been following now for several weeks in the PM complex, may develop. The US dollar will be playing a key role on how things may payout. Have a great weekend. All the best…Rambus

The inflection point in many of the different markets still continues to develop. The precious metals complex is approaching a very critical backtest to some important necklines we’ve been following. I added the GDXJ to the combo chart which shows the HUI, GLD, SLV and the GDXJ have all broken down below their respective necklines and are now in the process of backtesting those necklines from below. I can’t emphasize enough how critical this backtest is to the overall health of the impulse move out of the January low this year.

From a Chartology perspective the price action trumps everything else. It’s possible that these H&S tops may fail but until the price action can trade above those necklines the H&S tops are in place. I have the backtests labeled on the charts that need to be broken to the upside to negate those potential topping patterns. On the other hand if the backtests to the necklines hold I also have the price objectives for those would be H&S tops.

If the price action blasts up through those necklines that would be very positive but if I see the price action starting to stall out around those necklines I will be forced to exit the remaining 50% of the PM portfolios. This could very well be the shakeout before the breakout higher but these necklines will have to be broken to the upside first.

Last week the neckline held support and the $RUT got a good pop and hit a new all time high today. When the small cap stocks are doing well that means investor are willing to take on more risk and is usually good for the stock markets. It could use a little breather right now after such a vertical move.

This next chart is a ratio chart which compares the $RUT to the $SPX. When the ratio is rising that means the RUT small caps are outperforming the SPX big caps. Since February of this year the small caps have really outperformed the big caps.

Below is a weekly chart for the SPX which goes all the way back to the beginning of our current bull market that began in the spring of 2009. It took an inverse H&S bottom to reverse one of the worst declines going back to the great depression which scared many investors for life.

Some of you may remember the correction in 2011 which felt pretty negative at the time. As it turned out the SPX just created a H&S consolidation pattern instead of the many other possible patterns that could have formed.

If we are truly in a long term bull market it looks like the SPX has just finished its next consolidation pattern which is close to a two year H&S consolidation pattern. The way the price action is backtesting the neckline and bouncing looks very encouraging. This is exactly what you want to see from a Chartology perspective. The neckline gives one a low risk entry point as your line in the sand, above is bullish and below is bearish. It can be as simple as that.

I’ve studied most trading disciplines through the years and what the red numbers on this weekly chart shows is a basic Elliot Wave count. Maybe it’s possible that the SPX is just starting its fifth wave up which at a minimum should equal the first wave up in the secular bull market. At any rate this is a pretty bullish looking chart IMHO in more ways than one.

I know some of you are wondering why I didn’t post many charts today. The reason being, when there is extreme volatility one can get whipsawed to death getting caught on the wrong side of the whipsaw. My experience has been to let things settle down for a day or two and see what happens. I always look for how the price action is interacting with a potential strong support or resistance line. Normally, whatever the direction the big trend is in, when you get a day like today, after the volatility subsides, the big trend will reassert itself again. It may take a few days or a few weeks but the big trend is your friend.

Earlier today I showed you a daily chart for the INDU which showed several small blue consolidation patterns forming on top of a one year black triangle consolidation pattern. There is another daily chart I haven’t shown you yet that shows the two small blue consolidations forming in a rising wedge formation. Until today I had the lower black rail of the rising wedge parallel to the top rail. With the big reversal taking place I adjusted the bottom rail up to catch this weeks low, which is now giving us a rising wedge formation. I’ve shown you many times in the past how bigger patterns can be made up from smaller patterns. This is now the case with the rising wedge formation.

This is where it gets interesting. Probably 95% of folks that follow chart patterns think that a rising wedge is always a bearish rising wedge and prices will breakdown. That is true in many cases, but not always. In strong moving markets a stock can create a rising wedge that will breakout to the upside in the case of an uptrend.

Below is a two year daily chart for the INDU which shows you why I have been sitting tight with some of the leveraged trades. If you recall the beginning of this year 2016, the stock markets took it on the chin and had one of their worst starts to a new year. Things looked pretty bad then. What happened was that the INDU built out a small double bottom reversal pattern, which is actually part of a much bigger double bottom going back to September of 2015. Starting with our small double bottom that built out at the beginning of this year, you can see how the price action wasted little time putting on a strong impulse move up to the first reversal point in the blue flag. That blue flag took about three months to complete. Note the spike down into the fourth reversal point which was the BREXIT bottom, which began the next leg up to new all time highs on the DOW.

When the price action failed to really takeout the previous all time high and reversed back down, that was a warning sign that a potential bigger consolidation pattern may be developing. If the blue bear flag was a stand alone consolidation pattern the price action should have run much higher before correcting lower.

Now fast forward to this weeks price action. Again, another big whipsaw took place  which was very similar to the BREXIT vote low, the US elections low. How many could have imagined that the INDU would be up this strong today after it was down over 800 points last night. The moral of the story is the big trend is your friend regardless of all the noise that occurs within the big uptrend. From the January 2016 low you can see a series of higher highs and higher lows which constitutes an uptrend. Note the massive volume today on the breakout above the falling wedge.

It’s still too early to know yet, but if the bull market lives on and the top rail of the big black rising wedge gives way, that will create a bullish rising wedge halfway pattern as shown by the blue arrows. The price objective would be up around the 20,940 area. From a Chartology perspective, since the beginning of the year, you can see a classic uptrend forming, regardless of all the reasons it shouldn’t be happening.

Below is a six year weekly chart which shows the black triangle as a halfway pattern with the two small blue consolidation patterns forming just above the top rail. A new buy signal was given when the 30 week ma crossed back above the 88 week ma.

This next chart is a long term twenty year monthly chart for the INDU which shows the infamous JAWS OF LIFE consolidation pattern I’ve been showing you for longer than I care to admit. You can see how the triangle consolidation pattern we looked at on the chart above, fits into the big picture which is showing us the breakout and backtesting that has been going on since 2013. Keep in mind everything is big when you see a big pattern building out. Having the patience to ride out those price swings is a lot tougher to do in real time vs looking back in hindsight.

If you don’t like the JAWS OF LIFE consolidation pattern, below is another 20 year monthly chart, which shows the beautiful bull market that began at the 2009 crash low. After seven years of bull market action the INDU is on the verge of making a brand new all time high. Just think about that for a second before you dismiss it. This has been one of the most hated bull markets in history and has taken a lot of folks to the cleaners who have tried to short this market. This chart also shows you a good example of how trading in the direction of the major trend is so much easier to do than to try and trade against it. Virtually everyone who has shorted the INDU and is still holding on to those shorts are underwater. On the other hand, anyone who has bought this index has a profit if they are still holding on.

I keep on coming back to the 75 year quarterly chart for the INDU which helps keep me grounded in regards to the very big picture. I know many of you weren’t around during the 1970’s correction, but that too was a time of negativity which led to the greatest bull market in history at the time. I was hand building charts back then but didn’t know what would happen when the neckline finally gave way. If I remember right, it was 1051 or so. Pessimism was so thick back then you couldn’t cut it with a knife. The only person that I recall that had a bullish outlook for the stock markets was Robert Prechter, who thought the INDU might rally up to the 5000 area, if I remember correctly which everyone laughed at at the time. I know some of you are thinking I’m probably just as crazy as Robert Precther was at the 1982 backtest to the neckline, but are we in a current setup right now with the backtest to the top rail of the JAWS OF LIFE consolidation pattern? I haven’t said this in a long time. The only rule in the stock market is, there are no rules.

If the INDU is going to start a new impulse leg up, then the Transportation Average will need to come along for the ride, no pun intended, to confirm the bull market is alive and well. Below is the daily chart for the TA which shows the big H&S consolidation pattern which closed at a new high for the year today.

I know how exciting the short term charts can be at times, but it’s the longer term charts that really gives you perspective on the trend. Notice how pretty that one plus year H&S consolidation pattern looks on the weekly chart. As you can see the price action is only in its second week of the next impulse move higher after backtesting the neckline over the last seven weeks or so.

The 20 year monthly chart for the INDU shows you the massive H&S consolidation pattern that formed between 2007 and 2012. It was as pretty as it gets, as shown by the neckline symmetry line which shows the low for the left and right shoulders. The Transportation Average is now in the third month of breakout action above the neckline of our current H&S consolidation pattern.

This last chart for the Transportation Average is a 100 year quarterly chart which shows you the big H&S consolidation pattern on the monthly chart above. This 100 year chart also shows you how investors still paint the same chart patterns based on investor psychology. We’ll see the same chart patterns building out 100 years in the future.

I’m going to go thru these next charts rather quickly so you can see how everything is lining up for a decent move to the upside in the stock markets. Below is a twenty year monthly chart for the SPX which shows it massive 12 year consolidation pattern with the breakout taking place back in late 2012 or so. Note our current blue bullish expanding falling wedge consolidation pattern that had a breakout and a backtest to the top rail,  and the 21 month moving average this month. The top rail of the blue expanding falling wedge is a perfect line in the sand, above is bullish, and below is bearish.

The weekly chart for the $RUT shows it has broken out from a H&S consolidation pattern and has backtested the neckline this week. Also note the 30 week ma has crossed above the 88 week ma for a buy signal.

Next up is the BDI, Baltic Dry index which we haven’t looked at in some time but it looks like it may be starting to come to life. Just like the stock markets and commodities for the most part, the BDI built out a small red bullish rising wedge just below an important S&R line or neckline extension line. As you can see, there was a clean backtest last week to the S&R line.

The 15 year monthly chart for the BDI shows a potential massive bullish falling wedge building out with the price action getting close to testing the top rail. This would be a good index to see showing some strength, if the economy and commodities are going to have a decent run.

The daily chart for the $BKX, Bank Index, shows a very large expanding falling wedge with the current blue bullish rising wedge breaking out this week.

The weekly chart for the $BKX shows you two bullish expanding falling wedges that built out as consolidation patterns. The one that built out in 2010 – 2012 was quite a bit larger than our current one. Note how each one had a nice clean breakout and backtest to their respective top rails.

If the Transportation Average is embarking on a new impulse leg up the chances are pretty good the the $XAL, Airline Index, would also be looking bullish. The weekly chart below shows the $XAL breaking out above the neckline this week of a two year H&S consolidation pattern.

The monthly chart for the $XAL shows a very symmetrical ten year H&S consolidation pattern. Just like the Transportation Average we looked at earlier, you can see a similar H&S consolidation pattern building out, with the breakout taking place this week.

The $SOX, semiconductor index, is another area which has been very strong and is just a whisker away from making a new high, not seen since the 2000 mania bubble.

The $NWX, Networking index, we’ve been following for a very long time has taken its sweet ole time breaking out and backtesting that massive 12 year neckline. This has been a lagging sector which may finally come to life and play catch up.

The XLI, Industrial Sector, has been in breakout and backtesting mode since earlier this spring. An all time new high was achieved today.

There are many more charts I could show you but I’m running out of time so we’ll look at one more chart which is the XME, metals and mining etf. This is another stock we’ve been following for a long time which shows a nice inverse H&S bottom in place. Like with most commodities and the PM complex, it to bottomed out in January of this year. As you can see it has been in breakout and backtesting mode since the middle of the summer. Today’s price action is finally moving the XME up to almost a new high for the move. This index should bode well for the PM complex and commodities in general.

These charts should give you a feel for how the Chartology looks in many different areas in the markets. There is a lot of confirmation taking place between the many different areas which helps confirm the bull market is still alive and well. All the best…Rambus

Tonight is a good night to post one of the ratio combo charts we’ve been following for a very long time , which compares the TLT:GLD ratio to the GLD. Below the ratio chart is a ten year weekly bar chart for GLD.  There are many ways to analyze a ratio combo chart like this which can help one look for the intermediate to longer term trends.

When the ratio chart on top, the TLT:GLD is rising, that means the 20 year Treasury bond is out performing GLD and when the ratio is declining GLD is stronger than the TLT. On the left side of the chart you can see how the ratio chart on top built out a H&S top at the same time GLD built out a H&S consolidation pattern during the 2008 crash. Once both H&S patterns were complete GLD rallied for almost three years while the ratio chart declined. Note how the ratio chart on top and GLD on the bottom, both gave each other a nice kiss when gold topped out at 1920 in September of 2011 and the ratio bottomed, red arrows.

That point marked the exact starting point for GLD’s nearly four and a half year bear market. That bear market decline lasted until December of 2015 and ended when the ratio chart topped out at the previous 2008 high. Some of you may remember that when the ratio chart was trading at the 2015 high it was building out the blue rising wedge. If you recall I was looking for a possible breakout above the top rail which would have driven GLD down to the 700 area. What I knew was that whatever the direction of the breakout move, out of the rising wedge, a good move would occur.

You have to look real close but the ratio left a nice big breakout gap the week the rising wedge broke to the downside telling us the bear market was over for the PM complex at the same time GLD was breaking out above the top rail of its inverse looking bullish falling wedge. As you can see these two have been in consolidation mode since the spring of this year. This week the price action on the ratio chart touched the possible neckline and bottom rail of a potential bear flag. Just like we had to wait for the ratio chart on top to tells us which way the rising wedge was going to breakout we are in the exact same situation right now. The odds favor the ratio chart breaking down but confirmation the next impulse move is underway will be when the ratio chart closes below the neckline and the uptrend line.

Keep in mind that is a two year H&S top on the ratio chart so a big move should occur if and when the neckline gives way. From a Chartology perspective the TLG:GLD ratio chart is still in an uptrend while GLD is still technically in a downtrend. You can see how the next impulse leg down in the ratio and up in GLD will complete the massive reversal patterns. Things are setting up. Now all we have to do is wait for their respective breakouts to happen.

One last note on this ratio combo chart which is showing GLD has formed a positive divergence to the ratio chart by forming a higher low vs the 2008 crash low while the ratio topped out at the 2008 top. It’s pure speculation at this point but if the ratio chart declined down to its 2011 low, GLD’s high with the positive divergence GLD has right now, how much higher would GLD be? Anyway, knowing the big trend is most important. Trading against the major trend can be done but just look at how much easier it would have been to trade in the direction of the big trend vs against it. The setup is there now all we have to do is wait for confirmation.

This ratio chart analysis can confuse even the most experienced members . I recommend you study these two charts and then re read the narrative above.

Below is a daily chart for the TLT:GLD ratio which shows the H&S top up close and personal. Today the price action touched the neckline for the seventh time which is telling us the two year neckline it’s hot. This chart will give us the first clue when the next impulse move up is really underway for GLD. Have a great weekend. All the best…Rambus

PS

Sir Plunger at the Chartology Forum wanted to add the following to this discussion

Just had to comment on his TLT:Gold relationship post. Here is Rambus chart

Well there is a slight similarity of this pattern to something else near and dear to our heart. The great big H&S in oil before the big crash. Here it is:

and the resolution: