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.

Welcome to PM Trader’s Nightmare.

We’ve been following the GDX as a proxy for the rest of the PM stock indexes which is showing the on going correction or consolidation phase of the first big move up off the January low. This first daily chart shows the unbalanced double top which is the first reversal point in this new consolidation phase. The double top has a price objective down to the 24.50 area which was almost touched late last week. As you can see the double top trendline has held resistance on two separate occasions with the second one taking place this week. At this point we still don’t have a confirmed low which could launch the second reversal point to the upside yet. The price action is in the middle of no man’s land presently.

Below is a longer term daily chart we’ve been following which shows a possible trading range between 24.50 at the bottom and 32.00 at the top. Again, we still don’t have confirmation yet on the low for this first reversal point to the downside.

This third daily chart shows the fib retracements with the 38% retrace coming in at the 24.33 area. If, and that’s a big if at this point, but the double top trendline could be the neckline for a small H&S bottom which would fit in nicely with this potential trading range as the start of the second reversal point back up to the top of the trading range. It’s possible we could see a double bottom form at the bottom of the potential trading range which would be a reversal pattern also. Right now the price action is in neutral territory. As I mentioned previously these trading ranges can whipsaw a person to death trying to trade in and out. At least once the top and bottom of the trading range can be established then there is a chance to try and play the swing trades within whatever consolidation pattern may develop.

This next chart is a weekly look at the bull and bear market counter trend moves during the bull and bear markets since 2009. The red rectangles measures the same percentage moves down in a bull market but not time. On the left side of the chart you can see the bull market corrections, red rectangles, that punctuated that rally out of the 2008 crash low.  If our current correction is fairly close to the other corrections then price wise the 200 area should provide good support. There is also the 50 week ema that is rising and is currently at 204.

On the weekly chart above you can see the rally out of the 2008 crash low was very strong but even during that strong bull move it had three corrections, one forming on top of the other. Try to put yourself back in the HUI during that strong bull move and how you may have reacted to each correction within the red rectangles. It’s easy to look back in hindsight and see the corrections and say I would do this or that but it’s abstract and not reality. Reality is our current trading range which may very well be just the first correction in the mother of all bull markets, only time will tell.

Editor’s Note: This was posted  intra dayAfter the close GDX can be found closer to the Bottom of “The Zone” at 26.41