Tonight I would like to start off the Wednesday Report by looking at our current bull market in the HUI. I’m going to try and show you how our current setup is what one would expect in a bull market.

A stock or stock market does one of three things. First, it’s building out a reversal pattern that will reverse the current trend. Second, it’s building out a consolidation pattern that is consolidating the current trend. Third, the price action is impulsing after breaking out of either a reversal pattern or consolidation pattern. This is how markets works.

Below is a long term monthly chart for the HUI which shows the price action described on the paragraph above. As you can see the price action is either building out a reversal pattern, consolidation pattern or is impulsing in one direction or the other. This chart shows classic Chartology. On the right hand side of the chart the HUI had a big impulse move up out of its bear market low in January of 2016. At some point, during an impulse move, it will finally run out of gas and will begin to consolidate its gains. This is what I believe is happening presently. Note the bull market that began in 2000 with all the blue triangle consolidation patterns with an impulse leg between them. We’ll look at those in more detail later.

This next chart is a weekly chart for gold which I call, JUST ANOTHER BRICK IN THE WALL, which shows all the consolidation patterns that formed during gold’s bull market years from 2000 to 2011. I’ve always said this was one of the most beautiful bull markets of all time. Put yourself in anyone of those bigger consolidation patterns to get a feel of what it would take to hang on during the consolidation process. What’s important to notice is that gold never made a lower low except during the 2008 crash low as shown by the black bullish expanding falling wedge. If you look real close you can see little green triangles that formed halfway in many of the impulse moves up.

Looking to the right hand side of the chart you can see the very large black expanding falling wedge which is very similar to the 2008 black expanding falling wedge. Since the bear market low in December of 2015 gold has made a series of higher highs and higher lows. At this point the one thing that will get me concerned about our new bull market would be if I see gold close below the recent low, which was the backtest to the top rail of the blue bullish falling wedge.

One last note on the chart below. Notice how gold made all lower lows and lower highs from its bull market top in 2011 until the breakout above the bullish falling wedge.

This next chart is an old weekly chart for the INDU which shows the same thing as the gold chart above. This eleven year chart starts with the H&S top in 2007 which lead to the infamous bank and housing crash. That H&S top, which reversed the bull market up to that point, was the reversal pattern. The second reversal pattern formed at the 2008 – 2009 crash low which was the same height as the 2007 H&S top.

From that bear market low in 2009 began one of the most hated and greatest bull markets of all time. Note the small H&S top that formed back in 2011 which temporarily reversed the uptrend. As you can see that small H&S top found support on the old neckline extension rail that was actually taken from the 2007 H&S neckline labeled neckline extension rail. It’s pretty hard to see but there was a small double bottom that formed on the neckline extension line which reversed the price objective from that small H&S top.

Now I would like to turn your attention back to the present daily chart for the HUI keeping in mind the charts we just looked at above. This first chart for the HUI shows the impulse move up in its new bull market that began in January of 2016 and topped out in August of this year. As you can see this correction is bigger than any of the previous small correction that formed during this first impulse move up. As I mentioned previously I would expect the 62% retrace of the new bull market to be the worst case scenario if the HUI dips that low. The little blue triangle has a price objective down to the 50% retrace which comes in around the 192 area.

At this point in time there is no way to know what type of consolidation pattern may build out so for now the top and bottom trendlines are horizontal. As you can see we are now closer to the bottom of this new trading range than the top. So far this is normal Chartology behavior taking place.

Before you read this next section please go back and review the first chart in this post which is the 20 year monthly chart for the HUI which shows all the blue triangle consolidation patterns that formed when the bull market began in 2000.

This first chart shows the bear market low in November of  2000 and the first impulse move up that topped out six months later in May of 2001. That first impulse move up gained 79.63 points before the HUI began to correct and build out its first consolidation pattern which was the black triangle.

After a nearly six month correction the HUI began its second impulse leg up gaining 155 points in six months. Note how each impulse leg formed three smaller consolidation patterns. At this point there are two impulse moves up with the triangle consolidation pattern sitting in the middle.

This next chart for the HUI starts where the last one leaves off at the June 2002 top, impulse leg #2. The beginning of this second triangle consolidation pattern looks eerily similar to our current one. The red arrows measures the price objective for the small blue triangle down to the 104.70 area. As you can see the price action spiked to the bottom at 92.82 which created the second reversal point in the black triangle that built out over the next year. Impulse leg #3 began in March of 2003 and ended in December of 2003 gaining 146 points.

You may have notice the small black dashed lines which shows small reversal patterns at the reversal points. In big consolidation patterns like this these are the patterns I look for to try and trade within the consolidation patterns. Sometimes they’re very obvious but other times they can be hard to spot in real time. The main thing to keep in mine when trading these consolidation patterns is the big picture. It’s easy to get chopped up trading these consolidation pattern but knowing where the top and bottom of the trading range are located can help immensely.

This last chart for the HUI tonight starts where the last one left off at impulse leg #3. Again notice the black dashed lines which helps us find the reversal points inside the nearly two year triangle consolidation pattern. Impulse move #4 ran from May 2005 to May of 2006 which took one year to complete. This impulse move gained 235 points before it was finished. Big patterns equals big moves.

Note the hard shakeout after this last impulse move finished at 401.69. That two month shakeout down to 270 was actually the low for the next triangle consolidation pattern that would form.

There is no way to know how this bull market is going to play out. The odds favor that when we see a large impulse leg up that it will be followed by some type of consolidation pattern that will consolidate that move. It looks easy in hindsight when everything is 20/20 but it’s another story in real time. Knowing that after a large impulse move is finished that some type of consolidation pattern will form, will help us try to trade the swings within the consolidation pattern, always keeping the big picture in mind. All the best…Rambus

Just a quick update on the HUI triangle consolidation pattern we looked at yesterday which shows the price action heading down to the brown shaded double price objective, between 182 and 171.25. This should represent a decent place to buy your favorite precious metals stocks.  The pink shaded areas measures time and price for this impulse move down.

One of the things I’ll be looking for as the HUI moves lower will be some type of reversal pattern which will most likely be a double bottom or H&S bottom. We have yet to confirm the low for the first reversal point. Keep in mind these trading range can be very difficult to trade until you see the bottom for the first reversal point in place. We know where the top of the trading range is that will give us an area to shoot for. Hopefully we’ll get to do a few swing trades during the formation of whatever consolidation pattern develops always keeping the big picture in mind.

The stock markets have finally arrived at the dreaded month of October when investors begin to look for the markets to crash and burn. Some of the biggest crashes on record have occurred in October so it’s understandable why investors fear this month. For the most part though, October can mark an important low after weakness leading into this fearful month.

Below is a seven year weekly chart for the SPX in which I’ve highlighted the month of October to see if all the fear is warranted. What this chart shows it that if one bought the SPX sometime during the month of October they would have been profitable one year later. Even last year when the SPX showed some weakness during the month of October, which formed the head of the H&S consolidation pattern, one would still be ahead of the game as of today. As you can see we have the neckline and the 30 week ema offering support for this month of October. This is just the first day of trading for October so we’ll have to see how this chart looks at the end of the month.

Below is a daily chart which shows the NDX 100 big cap tech stock index trading at a new all time high today.

The breakout on the monthly chart.

Before I discovered the junior PM stocks in 2002 the big cap tech stocks is where I played especially during the 1990’s. The real move for the tech stock actually began in 1995 where the final parabolic move started into the 2000 top. You can see the red bullish rising flag that gave me a very good clue to look for a top at a minimum or some type of consolidation pattern to start to building out. Things were extremely bullish back then and to be looking for a top was off most investors radar screens at that time. Luckily for me I got out close to the March high as suggested by the red bullish rising flag halfway pattern, measured by the blue arrows.

Once the price action broke below the horizontal black dashed line that marked the beginning of the bear market that would wipe out most investors that didn’t sell waiting for higher prices. That bear market also devastated many of the high flyers that never came back.

The NDX built out that red bearish rising wedge during its bull market run that ended in 2007 along with all the other stock markets. What was interesting in the crash that followed was the NDX made a higher low vs its 2002 bear market low whch many of the stock markets made a lower low. This was showing relative strength

That 2009 low ended up being the head of a very large symmetrical H&S bottom. The bull market that started in 2009 has run unabated for over seven years now and it looks like it’s getting ready for the next impulse move higher and is now trading at new all time highs. Most see a huge top but I see a consolidation pattern that is breaking out topside. Remember patterns that slope up into the direction of the main trend instead of against it, shows strength. Note the previous red bullish rising flag that formed in the uptrend.

During this latest consolidation period note how low the RSI has fallen back to almost the 50 area while the price action is making new all time highs. The energy is there for this big cap tech stock index to begin its next impulse move higher IMHO.

A couple of weeks ago the Transportation Average had a false breakout above the neckline. That false breakout above the neckline is creating another chart pattern which is the red bullish rising wedge. Many times this is a very bullish setup.

The Transportation Average has been lagging the rest of the stock markets but with this huge H&S bottom in place this was one of the last pieces of the puzzle I was looking for to help confirm the next important impulse move up in the stock markets. Note how beautiful the symmetry is.

The weekly chart showing the H&S bottom.

The monthly for perspective.

The 100 year quarterly:

Below is the daily chart for the GDXJ which shows the diamond trading range that has been building out since the first of July. For three days the price action traded below the bottom rail which is shown by the thin blue dashed line. This morning the GDXJ gapped above the blue dashed rail and the 20 and 50 day ema’s and closed the day above the top rail, which now shows a six point diamond which is a consolidation pattern instead of reversal pattern. Sometimes it’s a fine line. We’ll get more confirmation if we see the GDXJ trade above the 5th reversal point making a higher high along with a higher low.

The diamond is still the valid chart pattern and with a completed 6th reversal point it becomes a consolidation pattern. There was also heavy volume today. The 20 and 50 day ema’s are now kissing. It’s always nice to see the price action trading above those two important daily moving averages on a closing basis.

This silver miners etf has been one of the strongest sectors within the PM complex. It’s currently forming a very ominous looking H&S top not to be taken lightly.

It wasn’t until yesterday that I could draw in a possible bottom rail of a possible diamond pattern on the GDXJ. This potential diamond pattern has been forming since the first of July. As it stands right now the diamond pattern has completed five reversal points which theoretically puts it into a reversal pattern category. With that said the bounce yesterday may have started the all important 6th reversal point to the upside which if completed would make this diamond a consolidation pattern to the upside. Keep in mind this potential diamond is still developing with no resolution either way yet.

This next daily chart for the GDXJ is a longer term daily look which shows the sloppy 5 point rectangle reversal pattern which formed at the bear market low. The false breakout through the bottom rail of the 5 point rectangle reversal pattern was the shakeout before the breakout. So far this first new leg up of the bull market is picture perfect with one consolidation pattern forming on top of the next. At some point the last pattern to form before we get a decent correction will be a reversal pattern and not a consolidation pattern. It’s not unusual to see a string of three or four consolidation patterns form within a strong impulse move. The diamond at the top of the chart will most likely tell us the direction of the next important move for the GDXJ and the rest of the PM complex.

Below is a daily line chart for a slightly different perspective. Note how the bullish rising wedge formed below the support and resistance zone and the expanding triangle above which is one way to take out overhead resistance.

This weekly chart puts everything in perspective. The diamond pattern is forming right in the heart of overhead resistance going all the way back to the 2013 breakout gap to the downside ping ponging between the two S&R lines.

Some of our long term members may remember some the diamond consolidation patterns that formed during the bear market years that seemed to take forever to complete. Some were not that pretty and had a false breakout above the top rail like the GDXJ. I believe the $XAU ended up with the most symmetrical diamond consolidation pattern of all the PM stock indexes. This weekly chart for the GDXJ shows the end of the bear market and the beginning of the new bull market with the five point rectangle reversal pattern reversing the bear market. Our current diamond pattern is going to tell us if the next move is going to be to the upside or we get our first real correction. Stay tuned as things are getting interesting in this red hot sector.

The INDU is finding initial support at one of the older chart patterns we use to look at. For the time being the INDU is doing a ping pong move between the neckline and the double top trendline. Something to keep a close eye on.