.

In this Weekend Report I would like to show you some charts on a potential very bullish setup that maybe in play for the US stock markets right now. If you recall back on November 19, The Wednesday Report, I showed you some critically important support zones that needed to hold if this was just going to be a minor correction from the big rally off the October low. Let’s visit a few of those charts and see how they panned out.

Wednesday Report: Nov 19

http://rambus1.com/?p=29360

The first chart we’ll look at is the INDU that shows the price action breaking below the top rail of the expanding rising wedge which I viewed as a negative. The real support I was looking for was the brown shaded support and resistance zone that is based on the previous highs made in July and September of this year. What had been resistance should now turn into support which you can see was the case. The 38% retrace and 50 dma also came into play right there as well. As you can see the INDU has now traded back above the top rail of the expanding rising wedge which I’m going to call the backtest as a, strong backtest, until something tells me differently.

I know many don’t believe in the longer term prospects for the stock markets but the long term charts are saying something totally different IMHO. Below is the long term monthly chart for the INDU which shows the expanding triangle that I’m calling the JAWS of LIFE. Note the long bar that bactested the top rail of the expanding triangle just three months ago during the October correction. That was one critical backtest that confirms for me the top rail is hot and the new impulse move is underway. There’s still a week or so of trading before the monthly bar for December can be put into stone. Unless things really change over the next few weeks this is a very bullish looking chart to me.

I won’t go into a lot of detail but the daily chart for the SPX shows how the brown shaded S&R zone held support just like the INDU.

Below is a long term monthly chart for the SPX that shows it built out a flat top triangle as its massive consolidation pattern. Since the top rail is horizontal the breakout came much earlier than the INDU’s breakout. Note the RSI at the top of the chart and how long it can stay in overbought territory.

The daily chart for the NDX shows the similar support setup that the INDU and SPX had. Here you can see support that 4100 did in fact hold at the previous high made in September, the 38% retrace and the 50 dma all coming into play.

Below is the long term monthly chart for the NDX 100 that shows the massive blue triangle consolidation pattern that broke out in 2009. Note the beautiful Chartology that appeared at the end of the big blue triangle consolidation pattern. I have shown you how H&S patterns can form on wedges and flags when the left shoulder and head forms inside the pattern and the right shoulder forms as the backtest to the top rail, in this case of the blue triangle. Note how steep the rally phase was from 1995 to the 2000 bull market high back then compared to our recent price action. I expect we will see similar steepening of our current rally as time goes on. One last note on the chart below which shows the red bullish rising flag that formed at the halfway point of the finally run to the bull market high as shown by the blue arrows.

Lets turn our attention to the RUT 2000 that has a totally different short term setup compared to the charts above. On Tuesday of this week when the correction was at its strongest I showed you this daily chart for the RUT that showed how it broke below the bottom rail of the blue rectangle but found support on the top rail of the much bigger bullish expanding falling wedge. Normally you have to give the benefit of a doubt to the bigger chart pattern in a situation like this. As long as the top rail held support that was still a bullish setup. On the other hand if the top black rail had failed then that would have called into question the whole bullish scenario at that time. Note the breakout gap of the blue rectangle that occurred on Thursday. This chart shows a good example of how one has to be flexible in their thought process and follow the price action.

The weekly chart for the RUT is getting a lot more bullish as we approach the top rail of that big one year blue rectangle consolidation pattern. It seems like the RUT likes to fake us out with its false breakouts. Notice the one at the bottom of the blue rectangle. I showed you a H&S bottom on the NDX long term monthly chart that finished off that massive triangle consolidation pattern. There is one on this weekly chart for the RUT that is building out toward the end of the blue rectangle consolidation pattern. It doesn’t get any better than this if you’re looking for a big pattern to finish building out, than to see a H&S bottom in this case, form at the tail end of the blue rectangle.

As I’m trying to paint a bullish picture for the short term and the longer term lets look at the monthly chart for the RUT 2000 that has a similar setup to the INDU. This monthly chart shows the RUT breaking above the top rail of its massive expanding rising wedge consolidation pattern and forming that blue rectangle that we just looked at on the chart above. Note how it’s forming right on the top rail of the massive expanding rising wedge. Again this is perfect Chartology.  One last note on the monthly chart below. During the October correction the RUT broke below the bottom of the blue rectangle and the top rail of the massive expanding rising wedge, as a false breakout move. It quickly reversed direction and is now trading well above the top black rail which I view as strongly bullish. The bears had their chance but couldn’t capitalize on it. When you look at the chart patterns on this long term chart for the RUT put yourself in a similar spot, just below an important trendline, as shown by the current blue rectangle, to see what took place when the chart pattern broke out. That includes the neckline on the H&S top that broke down. The point is we should expect a very large move that should last at least a year or longer. The timing couldn’t be better for those looking to establish long term positions.

Now I want to show you the meat and potatoes of this Weekend Report by looking at the shorter term charts for the INDU, SPX, NDX and the RUT and what may lie ahead for the very short term. First I consider the rally off of the October correction low as a very important landmark for the breakout move to the next level in the stock markets. If this is the case then we should see some good follow through to the upside.

I’m going to start with the SPX 2 hour chart that has a nice looking bullish expanding falling wedge that found support right where we wanted to see it which tells us we’re on the right track. Many times in a fast move up one can label that move up as a flag pole. The rally off of the October low to the December high would be the flag pole with the blue expanding falling wedge as the flag flying at half mast. If this is truly taking place right now we should see a move that is equal in time and price to the rally off the October low to the December high leaving the blue expanding falling wedge showing up as a halfway pattern. Below is the 2 hour chart for the SPX.

Below is a daily chart for the SPX that shows two black rectangles that measures time and price as shown by the blue arrows which would be using the impulse method of finding our price objective. One thing is for sure. This move will have to start this week and be just as strong as the October to December rally. Anything less would call this potential very bullish setup into question.

Below is a 2 hour chart for the INDU that shows it found support right where we wanted to see it come in and is now reversing symmetry back up. As you can see it’s at a points where we may see a little hesitation before moving higher.

Below is a daily chart for the INDU that shows the possible time and price if this scenario works out.

The 2 hour chart for the NDX 100 threw us a curve ball this past week when it broke below the bottom rail of its falling expanding wedge. Friday it broke back above the top blue rail in a show of strength even though it’s lagging a bit in here. It did find support where it needed to be found at 4100.

The daily chart for the NDX shows it’s just breaking above its S&R line on Friday. The black rectangles shows the time and price objective for the second leg higher if this setup takes place.

Actually the RUT 2000 is the real reason why I think this potential big rally can take place. As you know the small caps have been under preforming the big caps for awhile now. This daily chart for the RUS shows a 6 point flat top expanding triangle consolidation pattern that broke out on Thursday of last week with a breakout gap. A backtest would come in at the top of the flat top expanding triangle at 1188 or so.

One thing about this trade is we won’t have to wait long to know if this setup is going to work. We should see a similar move off the October low to the December high which is pretty straight up. The first thing we’ll need to see is for the different sectors, we discussed above, to make new highs right away. Any correction should be very short and only show up on the minute charts. What I’m describing here is for the short term. Those big consolidation patterns, that I showed you on the monthly charts above, is where the big money will be made IMHO but it won’t be easy.

I will show you this week some of the big multi year consolidation patterns that are forming on many individual stocks that made big moves back in the tech bubble that have been laying dormant but are waking up. Below is a sector that has been lagging the rest of the tech sectors but looks like it’s coming to life now. If one is looking for bargains this would be a good place to start looking. Below is a weekly chart for the $NWX, networking stocks, that just broke out of a bullish expanding falling wedge and backtested the top rail this week.

Guess where that bullish expanding falling wedge is located on the long term monthly chart for the NWX? It as formed just below the long term neckline which as I have shown you many times in the past is a bullish setup. It’s taking out two important lines in one shot. Think rotation in tech stocks which will drive the next leg higher in this sector. All the best…Rambus

The Psychology of a Triangle

One can only draw so many lines on a chart before they become completely confused on what trendline is actually important. Many will just start connecting two top points and two bottom points and calling it a pattern. That’s not how you find a chart pattern. A chart pattern shows the fight between the bulls and the bears. Lets use a triangle as an example of the fight between the bulls and the bear in an uptrend.

If the stock is in an uptrend the first reversal point will be when the initial top takes place. This can be on any time frame. Next you need to see the bears take control and drive prices lower creating the first reversal point starting at the top. At some point the bears will run out of gas and the bulls come charging back rallying the price backup to another high that is slightly lower than the first reversal point number one high, before they run out of strength to move the stock higher. Once the lower high is in place you can put a number 2 under the first low inside the triangle.

I always put a 3? with a question mark, at the second high within the triangle, until I can see the bears taking back control and start moving the price lower again. This time the bears couldn’t drive the price below the previous low, at reversal point number two,  before the bulls took control again. Once the bull took control I can then take the question mark off of the third reversal point, second high within the triangle. So at this point we have the first reversal point at the first top, the second reversal point at the first bottom, the third reversal point at the second lower high and now we wait for the fourth reversal point to reach the trendline that connects the first and third reversal points. Once that trenline is reached we can now label the fourth reversal point as the second higher low. A breakout of the top rail will then signal the bulls are back in charge in the dominant trend once again. Three things I like to look for on a breakout are in increase in volume, a possible gap or a nice long bar that is bigger than anything around it.

What I described above shows you the fight between the bulls and the bears that was a give and take event. A proper chart pattern needs to show these individual battles moving between the top and bottom rails of whatever  pattern is setting up. Many inexperienced chartists will just start connecting tops and bottoms on a chart with no idea of the psychology that is needed to identify a true pattern. It’s the individual swings between the top and bottom trendlines that you need to identity in order to have a true chart pattern. Again just connection two high points and two low points, at random, shows you nothing of importance.

The reason I took this time to explain to you on how to identity the psychological makeup of a chart pattern, is because you’re going to see a ton of them on the precious metals stocks to follow. Chartology is the study of charts and the psychology behind the charts.

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Before we look at the individual precious metals stocks I would like to start out by look at the XAU as a proxy for the rest of the PM stock indexes. This first chart is a 2 hour line chart that shows the correction that has been in place since the PM stocks bottom in early November. Keeping in mind what we discussed above, the first chart pattern shows a blue four point triangle consolidation pattern. Note how the price action transverses between the top and bottom trendlines. That shows how the bulls and the bears each took a shot to dominate this short term trend. As you can see the bulls won the fight when they were able to break above the top rail of the triangle. As the triangle formed in the uptrend the first reversal point had to start at the first high just as I described on the tutorial above. Note the near vertical move off of the fourth reversal point in the blue triangle that accompanied the breakout of the top rail. The bulls were clearly in charge as they were able to rally the XAU all the way up to the first reversal point in the top blue triangle before they ran out of gas. Reversal point number one is where the bulls ran out of gas and the bears took over for awhile. As you can see the triangle, at the top of the chart, shows the battle that ensued between the bulls and the bears with each side winning and loosing ground. The main thing to understand is the individual reversal points within the triangle, from top to bottom and then bottom to top.

Here’s where it gets interesting. During a consolidation pattern you need to see an even number of reversal points, 4, 6, 8 and so on. A reversal pattern will have an odd number of reversal points such as 3, 5, 7 or more. As you can see the triangle at the top of the chart has 5 reversal points which makes it a reversal pattern that told us the bears were back in charge as the bulls were unable to take out the top rail. Note that the 3rd reversal point doesn’t show the price action reaching the top rail. That’s because this is a line chart which just shows the closing price for this 2 hour time frame. I will post this exact same chart showing a bar chart that does show reversal point number 3 was indeed touched.

So now we have the five point triangle reversal pattern in place, at the top of the chart, which is reversing this small counter trend rally off of the November low. The third chart pattern on this chart is still building out which is taking on the shape of a flat bottom triangle. As you can see it has formed below the blue 5 point triangle reversal pattern and is testing the bottom rail which will complete the 4th reversal point when or if it’s touched. Note in the downtrend, the first reversal point started at the first low. So on the very short term time frame the XAU is in a confirmed downtrend. A break of the bottom rail will set in motion the next move lower to the November low. This next chart is a bar chart which is the exact same chart as the line chart above. I’ve left the trendlines in place, which I showed you on the line chart, so you can see the subtle difference between the two.

This next chart is a daily line chart that shows the counter trend rally off of the November low. You can see how important that dashed mid line is as it reversed its role, to what had been resistance on the way up, to now holding support on the way down. There is not much support on this chart if the mid dashed line breaks to the downside until the November low is reached. Note the 50 dma has been holding resistance so far.

This next long term daily chart for the XAU puts everything in perspective. First notice the big four point blue falling wedge which is labeled with blue numbers and the smaller red triangle labeled with red numbers. The main thing to grasp here is the big patterns are still in play regardless of all the reasons this counter trend rally is the beginning of a new bull market. Note the price action down at the bottom of the blue falling wedge at the breakout point. As you can see the XAU got an initial pop when it hit the bottom blue rail that lasted several weeks. Next came the breakout and our counter trend rally off of the November low which is backtesting the bottom rail of the falling wedge from below. You can see how critically important this backtest is. Note the RSI at the top of the chart which is just above 50 or so that often times signals a top within a downtrend. Also the MACD and histgram are now negative at the bottom of the chart. So if there was ever a place to start the next impulse move down this is as good as any.  One last note on this chart below. If you look at the fourth reversal point on the blue falling wedge you can see a small top that formed. When the price Acton broke below that black dashed trendline we were fully invested in the Kamikaze Stocks. That portfolio more than doubled when the November low was hit. However, just this small counter trend rally took away about 90% of those gains in a week or two. I’m just bringing this to your attention so you know how volatile these Kamikaze stocks, such as JDST and DUST are.

Now lets put the blue falling wedge in perspective by looking at the weekly chart. First notice the beautiful massive H&S top that reversed the bull market. The neckline symmetry rail showed the high for the right shoulder. When the XAU broke below the big neckline you can see it had a quick backtest that told us the neckline was hot and the next impulse move down was gaining strength. We rode most of that big impulse move down when we went short in the first week of December of 2012. On this chart you can also see the smaller H&S top that formed just before the 2008 crash that virtually nobody else seen at the time for which I took a lot of flack from the gold bugs. They wanted my head for blasphemy. The bottom line is, I look at the blue bearish falling wedge and see the breakout and now the backtest  which looks like it’s completing. We won’t know until we can look back in hindsight, however it sure looks like this chart is getting ready for the next impulse move down.

The monthly line chart tells a story of its own. On a monthly closing basis it shows the XAU already breaking out of an expanding triangle and on its way lower. When using a line chart note how clearly the inverse H&S bottom that launched the bull market, the 2008 H&S top and the massive multi year H&S top look. They stand out like sore thumbs.

The monthly bar chart for the XAU shows a bearish picture but from a different perspective. This monthly bar chart shows the XAU formed a blue triangle right on the bottom rail of the 5 point bearish rising wedge and then broke out. Note the three blue consolidation patterns that formed during the bull market years. That’s what a bull market looks like. Now compare the price action to the right side of the chart. That’s what a bear market looks like. This chart shows you a good example of how hard it’s to short a bull market and how hard it’s to buy in a bear market. You have to nail the tops and bottoms perfectly in order to capture a profit. I’m not saying it can be done but it’s by a magnitude, much harder going against the main trend. How many have made any real money shorting the stock markets or buying the PM stocks, over the last three years or so, and not giving it all back on the next impulse move.

As investors we always want to see things make sense to us when we invest in the markets. For instance when the US dollar is falling gold and commodities should be rising which is the case most of the time but not always. Recently a lot things we thought should be happening are out of sync with conventional wisdom so when we look at the following precious metals stocks, that make up the PM stock indexes, lets just focus on the chart patterns and what they’re telling us right now, today. We can complicate things to any extreme we desire by looking at so many things that one becomes so confused they don’t know down from up anymore. Keeping it simple and understanding what the charts are saying takes away a lot of unnecessary noise from making a rational decision. Believe me I know how hard it can be at times. As I’ve said many times in the past, we’re playing the toughest game on the planet to win and be successful. We’re playing against the brightest minds and computers in this arena  and they want to take every dime you have and don’t care one bit if you go broke. It’s eat or be eaten.

When looking at some of the longer term charts notice the many massive H&S tops and how a lot of PM stocks are testing or have already broken below their 2008 low. There are also some PM stocks that are backtesting below previous support which is turning into resistance now. BO means breakout and BT means backtest.

Lets start with one of the big cap PM stocks ABX. This weekly chart shows ABX backtesting the summer low and is beginning to sell off.

This long term monthly chart shows the neckline extension rail where I’ve extended the neckline from the bear market low in 2000. As you can see it’s still hot right up to last month where it backtested the neckline extension rail from the underside, blue arrows. Note how it’s reversed its role from support to resistance. ABX is also trading way below its 2008 crash low and is testing its all time low. Repeat : All Time Low !

As ABX is one of the giants in the industry lets look at one more monthly chart that shows the blue triangle that I’m viewing as a, HP, halfway pattern to the downside. When this one broke down from the massive H&S top I told members to look for reverse symmetry to the downside as the 2008 rally was so strong it didn’t leave behind much in the way of any consolidation patterns to help stop this bear market decline once it got started.

The weekly chart for AEM shows it recently broke out of the 6 point blue bearish rising flag and has attempted a backtest to the bottom rail. A break below the most recent low would suggest that the backtest is compete and the new impulse down is underway.

This long term monthly chart for AEM shows its entire history with our current red bear flag just hanging below the black dashed support and resistance line as the backtest. Note how similar the price action is to when AEM backtested the neckline of its H&S top.

The weekly chart for ANV shows the massive H&S top that has led to the most recent low. If one was aware of that big H&S top they would have saved themselves a lot of pain in this popular PM stock. Note the most recent blue expanding triangle consolidation pattern that has formed at the 2008 crash low. It completed a breakout and backtest before the bottom fell out. Try to be unemotional about this if you recently bought this stock thinking it could not possibly go any lower . Well It did and you can’t .

The monthly chart for ANV shows you one of those bearish falling wedges that tend to show up in strong impulse moves on any time frame. It showed some very nice reverse symmetry to how it went up and how it came back down.

One thing I like about trading the PM stocks is that it’s a small enough universe in which you get to know all the stocks almost on a personal level. I like to watch the ones that have a nice clean chart pattern, that has developed, which helps in understanding how the PM stocks on a whole may move. This daily chart for ASA shows it has been building out a beautiful rectangle consolidation for over a year and a half. I have shown this chart many times before the break in late October. The backtest to the bottom rail looks like a H&S consolidation pattern pointing to new lows if the little neckline gives way.

I’ve extended the left side of the chart out in time so you could see what a real impulse move down looks like. After putting in a triple H&S top you can see a series of smaller red consolidation patterns that formed during the big impulse move down in 2013. Think of the big blue rectangle as a halfway pattern between the triple H&S top to the next major low. If the backtest is finished then ASA is close to duplicating the last impulse move down as shown on the chart below.

This weekly chart for ASA is interesting because it shows the multi year expanding downtrend channel that broke below the bottom rail. The backtest is what set into motion the second reversal point in the blue rectangle. Note how the bottom black rail, of the expanding downtrend channel, reversed its role several times from support to resistance and most recently back to resistance where the bottom of the blue rectangle intersect as the backtest for both important trendlines. If ASA can trade above those two intersecting trendlines then the bulls will be back in charge. Until that happens the trend is down. That area shows a nice clean line in the sand.

As always the monthly chart  puts everything into perspective. As you can see ASA’s bull market top ended with a double H&S top reversal pattern with the blue rectangle, which I’m viewing as a halfway pattern, from the breakout of the H&S top.

Editors Note : Rambus Provided 20 more Charts of Major and Junior Miners for subscribers which have been left out for expedience

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I’m going skip on down and show you one last stock that I know a lot of folks are interested in. Below is a weekly chart for SLW that shows it just breaking out of a blue triangle consolidation pattern and is backtest mode. This blue triangle sits inside a much bigger pattern an expanding falling wedge.

This monthly chart for SLW shows its entire history. I’ll let you decide if this looks like a place to backup the truck or get on the train before it leaves the station. I hope these charts make it abundantly clear to you that the bear market is still in full force and buying the dips may still be  hazardous to your health which many a gold bug will shortly find out. There are still a few big caps I haven shown you in this report but these are the bulk of big cap stocks that make up the PM stock indexes. This is where the truth lies IMHO. It’s not in the price of gold or the US dollar or any other fundamentals you want to throw at the gold stocks. Whatever the real reason is it’s showing up in the price action of all these charts. The time is coming, but the answer to the question “Are we there yet ? ” is still No .

All the best…Rambus

Below are a few charts from the Weekend Report that are still following through with their impulse moves out of their bearish falling wedges or flags.

CRB daily:

CRB weekly:

CRB monthly:

GNX day:

GNX weekly possible new downtrend channel.

GASO day:

GASO monthly:

Oil day:

Oil weekly:

Natural Gas weekly closed right on the neckline.

Natural Gas monthly:

UUP daily. Most currencies held their ground today.

This from Sir Metallica at the Chartology Forum

Excerpt from the Oct.1, 2014 report:

“I envision we are starting a similar impulse move down that will have some twist and turns along the way that will try to shake us off. The ride won’t be easy but if you can hang on you will experience a ride of a lifetime… If you can fasten your seat belt and hold on for dear life, when the going gets tough, you will come out on the other side with a high cash reserve and the experience of actually riding and understanding what an impulse move is and how they work. That experience alone will be worth more than the profits you’ll make as you can take what you’ve learned and use it the next time you see an impulse move beginning.  All the best…Rambus”

Excerpt from the Sept. 30 report:

“As I’ve been telling you the impulse move is happening right before your very eyes. You will be given every reason in the book to sell out and take a small profit with the hopes of getting back in. I imagine some of you are already at this point. It’s important that you understand what is happening right now. This is a totally different ball game from what we were playing for the last 15 months or so. Understanding the difference between a consolidation phase, topping phase or bottoming phase is totally different from the impulse move that happens when those patterns are finished building out.”

Any members who do not visit the Forum are missing some really good stuff

posted by some real Students and Teachers !!

24/7

http://forum.rambus1.com/

Fully (Town Crier)

Tonight I would like to update a few oil charts I posted several weeks ago when oil was breaking out of that multi year five point triangle reversal pattern.

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Editor’s Note :See the links below to follow the evolution of this move in the Friday Night Energy Series .

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Before we look at the bigger picture I want to show you a short term daily chart that had an interesting day. There are several things I like to look at when I see a stock that looks like it’s breaking out. First, it’s nice to see an increase in volume but sometimes it happens a day or to later. Secondly, it’s always nice to see a gap where you were expecting a breakout. That gives you a little more confidence when your anticipating a breakout and it happens right where it should. The third thing I like to look for is a long bar that covers a lot of ground. It tells us that, in oils case, there were no more bulls left to defend the support zone, so they retreat en mass looking for the next support zone to try and defend. In a bear market all the bulls can do is put up some minor support as the big trend is down and they’ll be overrun again in due time by the bears. You can clearly see this on the short term daily chart for oil below.

This next chart is the weekly look where I showed you the POP & DROP taking place at the bottom rail, green circle, of the 5 point bearish triangle. If you look at the price action very closely you can see oil tested the bottom rail for three weeks as support was holding. Then we had the drop where the price plunged right on through the bottom rail like a hot knife through butter. And if you look real close at the price action below the bottom rail you can see there was a quick backtest before this current impulse move got underway. Looking at a daily chart of the breakout area you can see the breakout and backtest more clearly. I purposelessly left the bottom rail of the 5 point triangle reversal pattern thin so you can see how cleanly the price action broke out  and backtested the bottom rail.

The next chart for oil is a long term daily look that shows all the different chart patterns going all the way back to 2006. It shows the beautiful parabolic rise  back in 2007 & 2008, that as a chartists, I live for. To experience and follow every wiggle that a parabolic move makes, both up and down, is as exciting as it gets. After bottom in late 2008 and 2009 oil put on a decent rally forming the red Diamond as a halfway pattern to the high in 2011 where almost all commodities topped out including gold and silver. I would expect we’ll see some reverse symmetry now going down vs how oil went up into the 2011 high.

Below is a completely different view for oil that I had been following for years when the neckline became apparent. Note how many touches that neckline has. You can also see the breakout and backtest of the neckline that has led to our most recent impulse move lower. If you look to the left side of the chart, and the rally off of the 2008 low, you can see there really isn’t very much in the way of support as this decline unfolds. It’s possible at some point during this impulse move lower we might see some type of consolidation pattern form that will probably show we’re at the halfway point in this major decline.

I’ll let this chart speak for itself.

It’s been awhile since we looked at the GASO chart that is following in oil’s footsteps. Nice breakout today of an eight point bearish falling flag.

When Gaso broke out from the big five point rectangle reversal pattern I got a price objective by measuring the height of the big rectangle and added it to the breakout point that gave me a price objective down to 181 where the price action is closing in on the bottom rail. Normally this would be a place to look for a bounce of some kind maybe setting up a POP and DROP scenario. Oil will probably be our guide. If the price action gaps the bottom rail that will tell us Gaso wants to go down faster than what most expect. We’ll just have to watch the price action down at this 180 area and see how Gaso interacts with the bottom rail. Note the reverse symmetry that took place as Gaso was coming down vs how it went up in the 2010 – 2011 rally, red arrows.

I believe the Oil complex is just one piece of the puzzle that is leading to the deflationary spiral that looks like it’s already happening IMHO. When you start adding everything up and look at the long term charts for commodities and currencies, it’s happening and it’s happening right now. Many will be looking and talking about when we will see deflationary spiral begin in earnest but they won’t know it’s happening right now below their very noses. All the best…Rambus

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Editors Note : I note that there is gnashing of teeth all over the net regarding this Energy Move …WHO could ever have seen this coming ?

Sept 6 2014 Friday Night Charts

http://rambus1.com/?p=26898

Oct 4 Friday Night Charts

http://rambus1.com/?p=27737

Nov 14 Friday Night Charts

http://rambus1.com/?p=29102

One Last Chart  Notice the Date Dec 6 2012  and Especially Notice the Price Objective (PO) …NOW this is playing out  2 Years later . Patience is not for Sissies ..

I wonder if the Leaders at OPEC or Vladimir Putin read Rambus Friday Nite Charts and hedged .

In part two of this Weekend Report I want to take an indepth look at the US dollar as many of the important currencies of the world all seem to be making important moves right now. If that is true then the US dollar is also in the process of making an important move in the opposite direction.

Below is a long term monthly chart for the US dollar that shows black and white candlesticks. In a strong impulse move down you will see a string of back candles all in a row and in a strong impulse move up you will see a string of white candles all in a row. If the US dollar doesn’t crash and burn during this last week of trading for November, it will have completed it sixth month in a row of white candles sticks. This is telling us the breakout move from the massive ten year base is underway and is looking healthy. Remember big bases equals a big move and a small base equals a small move. It’s all relative.

The next long term chart for the US dollar is a monthly look going all the way back to 1984 which shows its all time high around 160 or so. As the US dollar declined from its all time highs it began to form a huge base which I labeled as, Big Base #1. When the dollar broke out of that big base #1 it led to a move to the 120 area in 2000 which started the bull market in the precious metals complex and the stock markets started their cyclical bear markets.  The move above the big base #1 S&R line, support and resistance line, lasted about three years. The US dollar built out a beautiful blue bullish rising wedge that formed at the halfway point to the 2000 top. The ride up wasn’t an easy one as you can see from all the chopping action during the formation of the blue rising wedge and this is a monthly chart. The big base #1 had two backtest to the S&R line before the impulse move really got going up to the 120 top. We have a well defined line in the sand now. As long as the US dollar trades above big base #2 S&R line it will remain in bullish mode.

Lets look at one more monthly chart that is a combo chart that has the US dollar on top and gold on the bottom. This chart shows a huge rounding bottom formation that began at the 2001 high. The red arrows shows the first positive for the US dollar vs gold. In 2008 the dollar bottomed and rallied while gold was building out its biggest consolidation pattern for the bull market up to that time. The divergence came in 2011 when gold made its all time high at 1920. One would have thought the dollar would have collapsed during that nearly parabolic run higher in gold but in fact the dollar made a higher low vs the 2008 low. That was a major divergence that told me the US dollar was finished with its bear market and gold was probably finished with its bull market which so far has been the case. As you can see on the gold chart it made a multi year low for the  month of November while the dollar made a new multi year high for November which is as it should be.

Lets now zoom in to the current price action looking at the weekly chart. The dollar made a blue five point rectangle reversal pattern that kicked off the breakout move above the S&R line on big base #2. That move gained momentum as it reversed symmetry up through the same area it came down through in 2013. The initial impulse move up was so strong it broke above the brown shaded support and resistance zone before finally getting a chance for a backtest which was dead on the money. Since the backtest at 84.50 the dollar has been rallying very strongly. So far there is nothing not to like about this move.

The daily chart for the US dollar shows all the small chart patterns that have formed since this impulse move began off the 5th reversal point on the rectangle reversal pattern. When the dollar had that false breakout of the bottom S&R zone, at the 5th reversal point, I added a note at the time that said, if this is indeed a false breakout we could look for a big move in the opposite direction. I wonder if anyone remembers that time. Back then the bars were much bigger compared to how they look now. As the dollar rises higher all the bars will look smaller and smaller. Note the small red rectangle at the top of the chart. Is this going to be just another consolidation pattern that breaks out to the upside or is it going to reverse the impulse move up that began at the 5th reversal point on the rectangle? At any rate the move from the 5th reversal point is what a strong impulse move looks like.

Below is another combo chart that has the US dollar on top and gold on the bottom. If you look to the right side of the chart you can see some inverse price action taking place. Note the dollar made the blue bull flag while gold made a blue bearish rising wedge. Now both the dollar and gold are locked into their current little red trading ranges that has yet to be decided which way the breakout will occur. I get the feeling that most are looking for the dollar to correct and gold to rally strongly higher. As always time will tell the story.

Below is the same combo chart but this one goes back further in time and shows the blue 18 month triangle on gold. I don’t have to tell you how critical this area is for gold and the US dollar for that matter.

Now I want to get on to the main theme of this US dollar post which is looking at the shorter term daily charts. As I showed you in part #1 of the Weekend Report, many of the important currencies of the world were forming potential bearish falling wedges on their daily charts. If that’s the case then the US dollar should be forming a similar pattern only in the opposite direction. Lets start with the daily chart for the US dollar that Ive been showing you for several  weeks or so that shows two small consolidation patterns forming one on top of the other. The lower pattern, the blue falling bull flag, is your topical bull flag that is sloping against the uptrend.  As you can see it failed to deliver on the price objective, up to the 91 area, before we seen another consolidation pattern forming the possible blue rectangle. This is now setting up the possibility that the US dollar is building out a bullish rising wedge pattern that will slope up in the direction of the uptrend.

Now lets put on the upper and lower trendlines connecting these two small chart patterns and see what we get. You can defiantly see a rising wedge taking shape. Keep in mind the rising wedge won’t be complete until the price action breaks above the top rail so it’s still a work in progress. If the rising wedge does breakout to the upside we’ll have a very big clue that this impulse move up is only halfway through and we can expect a similar move that led up to the first reversal point in the rising wedge. Note the two smaller red consolidation patterns that are slopping up into the uptrend.

There is an old adage on Wall Street that says if you see the US dollar and the stock market rising together that is bullish for the stock market because capital from overseas is finding its way to the US markets. Since the October low both the US dollar and the SPX have been rising together. Coincidence?

A perfect example of this happening was back in the mid 1990’s when the US stock markets were in the parabolic phases of their bull markets that actually started in 1995. The dollar and the SPX both topped out fairly close to each other in 2000. This is the point that set the stage for gold’s bull market to begin.

There is one more thing I would like to show you on what I think is happening with the US dollar right now. I don’t think anyone has picked up on this potential development yet. When a trend changes from from down to up there is usually a lot of chopping action at the bottom followed by the initial rally off of that bottom. During that initial rally phase a trend channel can form that defines the new uptrend. On the dollar chart below you can see a clear trend channel that has been forming since the bottom in April of 2011. As of the close on Friday the price action close right at the top of the channel. This is the point I want to try and tie everything together and show how the potential bullish rising wedge is so important to the big picture right now. Where it’s forming is critical which is just below, what I’m going to call the mid line of the new uptrend channel. Many times when a new trend is reversing from down to up, which is the case for the US dollar right now, the initial move up is huge which doubles the lower channel. As you can see on the chart below the dollar is sitting right at the mid line. If I’m correct we should see the bullish rising wedge breakout to the upside taking out the mid line of the brand new uptrend channel for the US dollar. This initial move up will be fast and furious equal to the first leg up off of the April low. The blue rectangles are what I call measuring sticks that measure each half of the new uptrend channel. The black arrows shows the last impulse move down into the ultimate bottom in April of 2011. I think we are going to reverse symmetry that move down into the 2011 low with our current rally phase capturing half of that move already.

Below is a 15 year chart for the US dollar that shows the possible brand new uptrend channel. If the bullish rising wedge plays out it will give the dollar the energy to take out the mid line and rally all the way up to the top rail of the new uptrend channel unimpeded pretty much.

Lets look at one last chart where I overlaid gold on top of the US dollar chart. I try to show this chart at least once a month or so because it has been spot on since I began posting several years ago. About six months or so ago I put a thin black dashed line on the gold chart and the dollar chart with the two blue arrows. When I first posted this chart, with the blue arrows, the dollar was trading below the thin dashed line and gold was trading above its thin dashed line. Now you can see how the dollar has broken out above its thin dashed line, had a backtest and is now set to run freely to the upside for awhile. On the gold chart you can see it’s still testing the breakout point which isn’t giving us any indication of the impulse move down yet. I moved the purple circle from the crossover area that happened in 2006 to the right side of the chart. If I’m right on the direction of the US dollar and gold then I think there is a good chance that we’ll see these two cross over again in due time.

So there you have it. The next couple of weeks are going to be very telling on which way all the falling wedges I showed you are going to break. Time always tells the story in hindsight but we can’t use hindsight in trading the markets. So until something changes this is how I see the big picture unfolding over the short to long term for the US dollar. How this affects other areas of the markets will remain to be seen yet. Normally a strong dollar is bad for commodities and the precious metals complex.  Will this time be any different. Stay tuned to find out. All the best…Rambus

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

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

This first chart is a long term monthly look at the Dow going back to 1997 with no annotations or indicators of any kind, just pure price action. When you look at this chart for the Dow I want you to look at the very last bar on the top right hand side of  the chart. As you can see the Dow is making new, ALL TIME HIGHS, for the month of November. Folks this is not what a top or bear market looks like. This is as bullish a chart you will find anywhere. Regardless of all the reasons why the Dow should be topping or is going into a bear market simply don’t add up . Again look at the last bar on the top right hand side of the chart.

Now that you can see what I’m seeing lets put some Chartology on this chart and see what it looks like. If you prefer you can put on your own trading discipline and see what you come up with. One of the basic principals of charting is what the the definition of an uptrend or down trend is. An uptrend consists of higher lows and higher highs while a downtrend makes lower lows and lower highs. This is a simple concept to understand. On this monthly chart below I’ve added all the chart patterns, as I’ve seen them form through the years.

Lets start at the 2009 crash low that ended on a massive capitulation spike in volume. Who could have ever guessed that five years later the Dow would be making record highs in 2014. I remember the 2009 low very well, the world as we knew it was coming to an end. That has stuck with investors all these years and makes them fearful every time the Dow has a decent rally. In reality, the real world, nothing could be further from the truth over the last five years. The old saying, the stock markets like to climb a wall of worry, pertains perfectly in this case.

Getting back to what a basic uptrend is,  you can see the Dow has fulfilled this requirement to a Tee. Higher highs and higher lows all the way up. Start at the 2009 crash low and follow the price action all the way up to our most recent high. I have said many times that gold’s bull market produced some of the best chart patterns I’ve ever seen in a bull market but the Dow is quickly catching up in that department. Once again notice the last bar on the top right hand side of the chart.

The next chart shows you what most chartists are calling the JAWS OF DEATH. From a Chartology perspective this is classic price action. Any trendline you put on a chart is either a support or resistance line. When the price is trading above a trendline it will act as support when touched from the top side and when the price action is trading below a trendline it will act as resistance. Eventually one of the trendlines will fail and that’s when you get your breakout.

If you look at a triangle consolidation pattern the top rail is resistance and the bottom rail is support. The price action trades between the two rails until either the bulls or the bears win out. In a bull market the bulls usually win the battle and in bear markets the bears usually win out. Looking at the chart below you can see it took six months of chopping action below the top rail of the Jaws of Life consolidation pattern before the Dow was able to overcome that strong resistance rail, as shown by the BO (Break Out) annotation. The Dow then spent about a year trading above that, what had been a resistance rail, to now a support rail. This is a perfect example of what happens when, in this case, the bulls win the battle, resistance turns into support. Note the two backtests, BT, that touched the top rail of the Jaws of Life from the topside.

You may recall last month when the markets were having a tough time of it and everyone was talking bear market. Note where the October low hit. Dead on the top rail of the Jaws of Life.   …Let that sink in for a moment….

Dead On !

A rapid waterfall 10% move to precisely the breakout point . Mr. Market was just checking back from above .At Rambus Chartology we were hoping and waiting for a chance to get on board . But we had to be nimble. Mr. Market did not hang around for a millisecond, in the grand scheme of things . A small head and shoulders pattern on the minute charts was the only signal he gave and fortunately we pounced on it in our General Market Leveraged ETF Trading Portfolio .

This tells us that is one hot rail to be respected. It’s very simple. Above that top rail is bullish and below is bearish. Until that top rail of the Jaws of Life pattern is broken to the downside, one has to be bullish on the longer term time frame, as this massive 14 year consolidation pattern is just breaking out. Well its been breaking out for a year now but it looks like all the work is done and the next big impulse move up is ahead of us. Again notice the last bar on the top right hand side of the chart.

A 75 YEAR BULL MARKET ?  ARE YOU SERIOUS ?

Yes Virginia I am .

Next lets put our Jaws of Life in perspective by looking at a 75 year chart for the Dow Jones. I know some of our older members will remember the 1970’s period when it looked like the world was coming to an end with inflation and rising interest rates going through the roof. That period on the chart carved out a massive H&S consolation pattern complete with a breakout and backtest before the bull market of a lifetime began. You can see our Jaws of Life consolidation pattern that is just breaking out at the top of the chart. Are we at the equivalent in time to the 1982 period for the Dow Jones? Few believed back in 1982 that a bull market was just getting started. It really wasn’t until the mid 90’s that everyone finally figured it out which led to the parabolic blow off. Followed by our just completed 14 year Jaws of Life consolidation .

Lets look at the Dow’s Little brother , the SPX. As you can see the SPX has already broken out of its massive flat top triangle , almost two years ago already!  If you focus in on the breakout area you will see there was one quick backtest shortly after the breakout and the SPX hasn’t looked back since.

Lets look at the 30 year chart for the SPX that shows the beautiful flat top triangle consolidation pattern with four complete reversal points. If you compare our current price action, since the 2009 crash low to the bull market rally back in the 80’s and 90’s, separated buy the red bullish rising wedge, you can see the price action just seems to keep rising relentlessly with only small corrections along the way, leaving many retail investors staring from the sidelines in awe !

Looking at the 75 year chart for the SPX you can see how our current flat top triangle fits into the big picture. As in any time frame an uptrend is a series of higher highs and higher lows. For the most part we can call this a massive 75 year uptrend.

Lets look at one last chart which will be for the RUSSEL 2000 small cap stock index. It to has broken out above its top rail of a 14 year expanding flat bottom triangle and is still in the process of the backtesting the top rail from above.

As these charts above show we’re at an interesting juncture right now in regards to the stock markets. If one has the discipline and courage to buy the strongest stocks or etfs and hold them for several years or longer they will be well rewarded for their efforts in the future in my opinion. I can tell you it’s never easy to hold on during a bull market as every little correction will seem like the next bear market is beginning. There were some outrages profits made during that last secular bull market in the 80’s and 90’s for those that bought the right stocks, especially in the tech sector, and held on for the ride of a life time. No one knows how long our current five year bull market will go on but by the looks of those really big consolidation pattens, that I showed you above, it’s not going to be a flash in the pan type of move. The bigger the consolidation pattern the bigger the move that follows.

I want to leave you with one last long term chart for the BTK (Biotec Index) that has been the leader in this bull market and has a similar big blue consolidation pattern to the ones I just showed you above. I expect the Dow Jones and the other US stock markets will have a similar look when they really get going. Will you be watching or Participating ?

All the best…Rambus

PS: Tomorrow I will show you some charts on some of the Kamikaze Stocks  that you haven’t seen yet. These are fresh out of the oven…

Hello :

For new members and trial members who don’t know I am Gary (aka Fullgoldcrown)

Resume :

Former Gold Permabull ..then after having my crown handed to me by Mr Gold Market

Converted  Rambus Student ( Dave calls me his first and most difficult student)

Rambus Chartology Editor

and

Town Crier / Class Clown .

I would like to take this opportunity to review Rambus Chartology and explain what our site is all about .:

Rambus (Dave Tablish from Northern Arkansas) has been a Market Technical Analyst since long before it became fashionable and easy with the advent of computers .

He started out when he came across the original work of Edwards and Magee in “Technical Analysis of Stock Trends” originally published in 1948 and started applying it with  pencil and ruler  protractor and graph paper over 30 years ago .

Sixty-three years. Sixty-three years and Technical Analysis of Stock Trends still towers over the discipline of technical analysis like a mighty redwood. Originally published in 1948 and now in its Tenth Edition, this book remains the original and most important work on this topic. The book contains more than dry chart patterns, it passes down accumulated experience and wisdom from Dow to Schabacker, to Edwards, and to Magee, and has been modernized by W.H.C. Bassetti.

Bassetti, a client, friend, and student of John Magee, one of the original authors, has converted the material on the craft of manual charting with TEKNIPLAT chart paper to modern computer software methods. In actuality, none of Magee’s concepts have proven invalid and some of his work predated modern concepts such as beta and volatility. In addition, Magee described a trend-following procedure that is so simple and so elegant that Bassetti has adapted it to enable the general investor to use it .

……………………………………..

Rambus learned the only way , from the school of hard knocks ,from trial and error , and more error and losses. But his fascination with the incredible symmetry of chart patterns and his never quit attitude convinced him to stick with it .Technical Analysis became his passion . Over the years he refined his skills and added many of his own observations from his real time charting and trading. Many of these insights can be found in the section on the sidebar of Rambus Chartology called ‘Timeless Tutorials”

Dave finally hit the jackpot in the late 1990s teck mania blowoff when he attached himself to the stock RMBS and traded it all the way to the incredible top. Then spotting a tiny head and shoulders top he exited and left that market to build his dreams .

Hence in about 2006 when Dave started posting his original charts at Goldtent  ( a site where rabid goldbugs like myself inhabited) he took on the moniker “Rambus”

After a short hiatus from the Markets in 2000 (Rambus has always told me that when you make a good score in the markets its best to take much of your winnings out and use them for other purposes lest you give them all back) , Dave returned to his charting and identified what appeared to be a 5 year bottoming pattern in the Gold Market

In about 2002 he started to study and learn everything he could about this horribly beaten down and forgotten market . He familiarized himself with the Metals and the Miners both individually and via the Mining Indices . he was immediately  very impressed that the PM markets held some of the most pure and beautiful symmetrical patterns and he quickly became hooked .

He traded the PMs from the long side in quiet obscurity for several years before he found Goldtent and started to contribute posts. We were in awe of his work .

Rambus charts predicted more and more upside all through 2006-7 and into 2008. Nothing but Bullishness as far as the eye could see. Consolidation Patters always broke out to the upside . he was a hero to us goldbugs . Until that fateful post one fine day in mid 2008. he called his post “What If ? ”

I attempted to save all the goldtent posts from that era but many are now dead links.However here is the post I put together in December 2011 called “Deja Vu” which contains some the charts from the 2008 era .Wow. Notice the WTIC call too .

http://rambus1.com/?p=1829

Rambus located this chart which was posted on New Years Eve 2008 which chronicles his calls from that incredible era in the PM markets .

Well: That was then and this is Now . And here we are again.

Here are some more recent  charts in  which Rambus Projected  the present PM carnage as long as 2 years ago.

This chart produced Feb 15 2013 , shows how the HUI top was actually predicted by the price objective contained in the 6 year head and Shoulders bottoming pattern from 1997 to 2003 . Incredible Chartology  .

BUT how did Chartology do in forecasting this present Bear Market ? Well for one thing look at that chart above and see the impending Head and Shoulders TOP !

Wouldn’t you have loved to have seen that Top back the in Feb 2013 ? What would you have done differently ?

Here is the Rambus Comment from the post of this work

“The Chartology of the entire chart is one of beauty and symmetry which some will see and others won’t. They say beauty is in the eye of the beholder. What do you see?”

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Actually Rambus Produced a Chart called “A Diamond in the Rough” on New Years Eve 2012 which preceded the above chart and was the first warning of impending doom .

Diabolically  this breakout was followed by a huge bull trap rally back to retest the diamond and that formed the right shoulder of the Huge head and Shoulder pattern which proved to be the Top

Fast Forward February 22 2013

“Lets look at one more example that you won’t find anywhere else except here at Rambus Chartology. You can see two reversal patterns, the 11 point Diamond that is actually the head portion of the much bigger H&S top that few believe is for real. The other pattern is the massive H&S top. Its good that few believe this pattern is authentic because everyone can’t exit at the same time. The lower it goes the more people will begin to understand what is actually happening but it will be too late to take action and they will most likely ride the whole thing down or sell into any counter trend rally that will occur thus putting a ceiling above the price action. I hope these examples help you understand what I mean when I talk about odd and even numbered chart patterns.”

All the best

Rambus

Chart 3: Nervous Breakdown !

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

Followed soon after by “SLV RED DIAMOND”

See that PO ?  Of the Red Diamond  ?  Made 1 year ago …14.50 !!… Which is exactly where SLV has bottomed to date . Yikes !

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OK : The real point of this post is to Explain this Rambus Chartology Website .

On a day to day basis we all of course focus on the daily and minute charts as that is where the rubber meets the road. However we feel that Rambus best value is in identifying major trends and major trend reversals .As you all know identifying trends and profiting from them in real time are two different animals .This is what Rambus attempts to do in his daily realtime market commentaries.

Rambus Chartology is First and Foremost a teaching site. The greatest value of this site is learning Chartology ( a blend of Chart pattern recognition with Market Psychology). The aforementioned “Timeless Tutorials” as well as “The Wizard of Rambus” are the places to go for this.

We realize that not everyone is inclined to learn Technical Analysis and that many come here to see how Rambus is trading the various markets in the desire to trade with him.

For you ,as you know Rambus is not a Certified Financial Planner and he trades his own portfolios (see the obligatory disclaimer)

He has  4  Virtual Portfolios on this website (Rambus also trades his own personal portfolio with  the same trades)

The Most widely followed Portfolio is the Kamikazi Portfolio.

Rambus recommends you put a maximum of 5% of your risk capital in these trades. To say they are volatile is an understatement.Recently a 200% profit in 3 weeks has vaporized.

http://rambus1.com/?p=14865

His other Portfolios are The Junior and Model Portfolios which were originally meant to hold PM Miners in Bull Mode but which now have various other trades.

AND

The new (from May 2014) General Market Leveraged Portfolio which trades 3X ETFs on selected market sectors.

http://rambus1.com/?page_id=23371

In Summary Rambus would like each an every one of his members to learn and be able to utilize the principles of this incredible Market Forecasting Discipline .

In closing here is a response to a member who asked probably the most important question of all .

Why do charts work  ?

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“Hi its Fullgoldcrown here

In case Rambus misses this question I will answer it as I know he would .

……………………………….

Simply because Human Nature is predictable .  Market Participants are all motivated to act by the basic emotions of Fear and Greed.  Charts are the sum total of the opinions of Market Participants. Rambus favorite expression of this is “Its All in the Charts”. What he means is …we can never really Know the fundamentals and how they will play out .We will never really know the extent of Manipulations .We will never really Know Sentiment…or Seasonal Effects or anything in real time. What we think we know about all these things is just our speculation

What’s that brilliant quote again ..? “Its not what we don’t know that gets us in to trouble It’s what we think we know that isn’t so”

The real drivers of the markets are in sum total only knowable by reading the charts . We can all see the history of the price action by viewing a chart .

Where Rambus is Invaluable is his ability to read the language of the markets through its Price Action .

OK Now

One Of My Personal Favorites where in March 2013 Rambus Posted

“Dollar Bears Prepare to Hibernate”

(be sure to read the last 2 charts )

http://rambus1.com/?p=11237

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Update : Nov 28 “Energy Deflation Here and Now”

This post highlights the Evolution of this Hugely important Deflationary event

http://rambus1.com/?p=29640

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Years of Study and Experience , a Gift for Pattern recognition and a touch of Intuition

I doubt that we will ever see Rambus’ equal .

But of course I am Biased

🙂

Fully

Yesterday we took a second position in SCO which is a 2 X short oil etf. Lets take a more indepth  look at oil which is showing it’s finally breaking down from a massive topping pattern. We’ll start with the short term daily chart that shows the breakout and backtest to the bottom rail of the little blue bearish  falling wedge. I’m using it as a halfway pattern to get a measurement based on the blue rectangle that traded just above the blue falling wedge. The blue arrows shows the impulse method of measurement along with the breakout method that shows the price objectives down at the bottom of the chart as shown by the brown box. This is just a very short term price objective.

Below is a weekly chart that shows the bigger picture which is a 5 point rectangle or if you want to be really picky, a 5 point triangle reversal pattern. Both the top and bottom rails are pretty horizontal but they do have a very slight slope to them. Also this has to be a 5 point pattern because it has formed off of the 2009 low. Remember an odd number of reversal points creates a reversal pattern. A double top or bottom have 3 reversal points. A H&S has at the minimum of 5 reversal points. A triangle or rectangle needs at least 5 reversal points. An even number of reversal points creates a continuation consolidation pattern. So with that in mind lets look at the rectangle/triangle and see how it turned out.

You can see the the consolidation pattern has 5 reversal points that shows it to be a reversal pattern to the downside. Next I want to focus your attention to our current price action as shown by the green circle. I originally had the bottom rail in a horizontal position. It’s very important when drawing a trendline to look for certain things. If you look real close inside the green circle you can see a small pop and drop pattern that we’re experiencing on gold’s breakout right now. This weekly chart for oil shows the first weekly bar hit the trendline and then got a small bounce for two weeks. On the fourth week you can see oil broke below the bottom black rail in a breakout move where we took our initial position in the 2 X short oil etf SCO. Notice the very last bar inside the green circle which is this weeks trading action. As you can see it made one last rally attempt that was stopped dead in its tracks at the bottom rail at about 80 or so.

Once you suspect a stock is breaking out always tweak your trendline which  will usually show you up close and personal the breakout and backtesting process.  Most of the time you would be surprised on how cleanly a trendline can cut through the price action telling you exactly where the breakout is taking place. The chart below shows you this very clearly.

Since this is a reversal pattern the only way to measure for a price objective is to take the width of the triangle/rectangle and add it to the breakout point. This is another reason you want to know exactly where the breakout occurs. The blue arrows shows you the width of the reversal pattern, added to the breakout, gives you a price objective down to the 40.29 area. One last note on the chart below that shows the first reversal point began in, you guessed it, 2011. Oil is following the same path as most commodities and the precious metals complex.

The next chart shows you the parabolic run oil had that began with the inverse H&S bottom back in 2007. No one knew that a parabolic move was going to unfold over the next year or so. All I knew at the time was that oil put in that inverse H&S bottom reversing the downtrend. You can see the red rising bull flag that slopped up into the uptrend that always tells us the move is strong. The parabolic move up finished with that massive H&S top that had a price objective all the way down to the old all time highs for oil at 35. For those that would like to study what a parabolic move looks and feels line can isolate the price action between 2006 to 2010 in linear scale. Patterns like this  are what chartists live for.

This next chart for oil shows the price action going back to 1995. Note the backtest to the bottom rail of the uptrend channel that occurred in 2011 which created the head of that massive H&S topping pattern. The bigness of these long term patterns tells you deflation is going to be around or sometime to come.

This next chart for oil shows my thinking back on July 4th 2008 when oil was going parabolic. It still hadn’t ended its parabolic run yet but I was on the lookout for a small H&S top or double top on the 2 hour charts looking for any kind of reversal pattern. I knew once the parabolic move up was over there would be a big decline but I had no idea at the time that oil would fall as far and fast as it did. It wasn’t until I recognize the bigger H&S top that I could come up with a downside price objective which ironically was at all the previous highs oil made in history around the 35 area, before oil broke that 35 boundary and started its parabolic rise.

OK one last chart that shows the total history of oil going back to 1982. Notice the brown shade support and resistance zone at the 35 area that had kept oil in check until it broke out in 2004.  Oil finally broke out above the brown shaded S&R zone in 2004 then backtested it in early 2005 which eventually led to the parabolic run to 147. Note how the parabolic crash found support right where you would have thought, right on top of the brown shaded S&R zone. What had been resistance for all those years turned out to be support during oil’s parabolic crash. Pretty amazing. All the best…Rambus