We’re going to do something a little different for the Weekend Report this week. I would like to give the spotlight to Sir Plunger for his most excellent work on the Phase 3 for the PM stocks bear market. It deserves to be read by the members of Rambus Chartology and the general public at large. I just want to thank you Sir Plunger for all the time, research, and energy it takes to put together something like your Phase 3 bear market outlook for the precious metals stocks .

As most of you know , Plunger is our resident expert on market history .
He has devoted himself recently to the study of Bear markets in general
and now has zeroed in on our presently ongoing precious metals bear .

This Essay was penned this weekend and posted at our members forum .

I trust you all will find this as fascinating and provocative as have I .

Warning : This essay contains disturbing material and is not for the feint of heart

Rambus

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This essay builds on my previous bear market studies by drilling down into the third and final phase of a bear market. I recommend reviewing the three phases of a bear market in my previous posts.

Dow theorist, Robert Rhea is credited with developing the concept of the three psychological phases of both bull and bear markets back in the 1930’s. I have attempted to advance his work by applying chartology and thereby assigning price patterns to these phases. I have discovered that deep bear markets undergo similar progressions and similar patterns to each other. Following the progression of these patterns along with studying the prevailing psychology gives us clues as to where a bear market is in its life cycle. The value of this should be obvious and by knowing where we are in this bear market we enable ourselves to position our portfolios for generational sized gains at the bottom. This essay develops the second half of the study of Chartology… the psychology part.

Three Phases of a Bear Market

The Route to Phase III

The conclusions of this study come from a review of the major bear markets of the past 150 years. It is original work as not much wall street brain power has been devoted towards bear markets since wall street exists for one reason only, and that is to distribute product. (plus skimming through HFT) With this as their purpose it is convenient for them to pretend that bear markets never really happen, or at least it seems that way when one reads their material. Its hard to sell product in a bear market, so bear markets are glossed over. This of course opens great opportunity for reality based market students willing to study markets and their cycles. I have observed that the price patterns of a bear market progress through a methodical sequence of patterns just like the psychological phases do. The beginning of the bear is characterized by a topping pattern. It can be any pattern, but typically it is a H&S, or sometimes a rising wedge followed by a failure and a prolonged back test of the breakdown pattern. Review the Bear Market Models essay and one can see these patterns. Next comes a prolonged decline down the slope of hope where the public thinks lower prices are providing them a buying opportunity since it is simply just a “correction”. A bear market rally (BMR) may get ignited along the way which serves to reinforce the belief that the previous bull market remains intact. Eventually however, the price decline reaches a point of recognition (POR) where the public as a whole collectively recognizes that it is not just a correction but something more, quite likely a bear market. The POR is often associated with a news event or some type of catalyst that accelerates the existing downtrend. The POR ALWAYS comes in phase II and typically is coincident with a crash. The crash is due to the simultaneous reversal of expectations of the average investor.

Once the crash is over the market enters a prolonged consolidation. The consolidation can take various forms and is often very complex, thus reflecting the general confusion present in the market. The post POR consolidation is often a robust battle between bulls and bears and quite often resolves itself with the ignition of a bear market rally (BMR). The BMR is the expression of the hope and belief that the bear market is over therefore it is more than just short covering as it includes elements of organic buying. Its duration typically lasts from 5-12 weeks, but burns out and finally succumbs to gravity and rejoins the downward trend of the cyclical bear. Eventually, this process of failed rallies takes its toll on the investor and the price action degrades to the point where all hope is abandoned. It may take a number of BMRs to complete this process of investor exhaustion and disillusionment. Once finally achieved, the market can now enter its phase III and in a deep bear market it is no less than an annihilation. In a nutshell here is the typical bear market roadmap: Market top-downward slide-BMR-POR w/crash- Consolidation- BMR- Consolidation departure-Phase III annihilation -final bottom. That’s the route a major bear market takes and its psychology reflects the price action all the way down. Here is our current Precious Metals bear market, its route reflects all these classic mile markers and it is my contention that we are about to enter Phase III….The Annihilation

Bear Market Models

The Horror.

Recall in the movie Apocalypse Now, when Col Kurtz (Marlon Brando) dramatically utters in the final scene….The Horror, …the Horror! That’s the image of phase III in a major bear market. Colonel Kurtz devastatingly describes the horrors of war, dismembering children’s arms and stacking them in a pile, the trauma that drove a hardened veteran as he, insane. This is the horror that happens to investors in phase III. Life savings shredded, dreams abandoned, college students called home for want of tuition, retirements ruined, …the horror. Phase III is a treacherous final slide that takes no prisoners. It devours anyone who even thinks they can maintain their buy and hold stance, since the price action crushes them, extinguishing any flickering hope of eventual gain they may have still harbored. The dreams of fabulous opportunity they once had at the top, finally snuffed out due to the series of false bottoms collapsing along the way in the long downward slide. With all hope of future gain now gone the investor aggressively moves to salvage what is left in a last ditch defensive reaction. Previously in phase II investors have cutely executed Warren Buffet’s advice of buying when others are fearful and now stare into the abyss as the fear of others now turns to their own horror. When the price action accelerates downward into phase III the pain becomes too great and the final capitulation is characterized as despair fueled by lost hope. For those who may think this is hyperbole, please review the phase III price action in the Bear Market Model series. The destruction wrought by a phase III collapse is truly breath taking. By the end of phase II in March of 1932 the DOW had already declined 77%. It would seem reasonable at this point to think the market near a bottom, enough damage had been done. Certainly, buying in anticipation of a rise would seem a lock, even prudent. If acted on, however one would have suffered a 55% further collapse in phase III over the next 3 months before the bottom was finally reached. That’s the destructive power of a phase III. The 1932 series is a valid model, since today’s HUI had declined a similar 69%, and the GDXJ 81% at their phase II lows in December. Even though todays psychology is very negative it has not yet progressed to that which prevails at phase III bottoms, that of black pessimism. So could the HUI/GDXJ get cut in half from today’s levels in an upcoming phase III even after these horrific declines? Quoting Nancy Pelosi: “are you serious”?

Please Click on chart 2X to Enlarge

Phase III Flush

The visual picture of phase III can be compared to flushing a toilet. At the top of the bull the lever was pulled and we have been watching the water swirl around the rim for 30 months and it has now finally reached the lower ends of the bowl. Investor hope keeps prices elevated just as centrifugal force keeps the water in the upper half of the bowl, finally reaching the bottom the rotation of the water accelerates as gravity overtakes the swirling centrifugal force and it finally goes straight down the hole. This visual picture is analogous to phase III action within a bear market. Phase III has no BMR, since there is no longer any hope to fuel it. Phase III is not about hope it is about liquidation. And it is that liquidation that leads to accelerated price decline. The 3 month sell off between March 1932 and the bottom encompassed a larger decline than the epic 1929 crash itself. Gold stocks are particularly vulnerable to rapid declines. In August of 1974, it took just 16 trading days to cut the Barrons gold mining index in half. Homestake dropped from 70 to 30 in what was called the Schaefer panic when the popular newsletter writer abandoned his advocacy of the sector. In Phase III, market shocks as these, can roil the sector pummeling even solid quality stocks. The downward spiral continues with no relief in sight with no rallies to allow an escape. The market desperately seeks any form of liquidity it can find therefore it now lowers its crosshairs on the blue chips since the junior and mid-tier sectors have long since been destroyed. Once the blue chips come under fire, the wailing is that heard in an inferno. Long term holders are forced to act in a bid to salvage what they have, unable to risk further declines and possibly end up retiring in poverty, the pain becomes too great, thus the selling orgy commences. For up to two weeks quality stocks are jettisoned at comical prices, the race for liquidity is on and people are motivated to sell at any price due to the despair of saving themselves from failure, regardless of any concern of embarrassment. Steady, dividend paying blue chips get sacked, dreams are destroyed, then in the last final decline, volume finally dries up, the markets then become immune to the most shocking of news, corporate closures or bankruptcies no longer drop the market since the selling has now exhausted itself. The bottom is then in. Stocks now sell at below known values. In Sept 1929 US Steel, the senior of blue chips, sold for $261, by July 1932 at the bottom of phase III, it traded for $22. That’s the power of phase III.

Phase III dead ahead – Factors demanding a verdict.

It has been my premise that despite the massive annihilation-class declines we have had across the PM spectrum we have still not had a phase III decline. I stake this claim for several reasons, the first being this bear market’s sequence of pattern construction. Recall my rule that the POR ALWAYS comes in phase II. The one fact that is unassailable about this bear market’s time line is that its POR came in April 2013. The POR was black and white and it came with all the classic indicators: a shift in psychology, a crash and volume to pinpoint it. After the Goldman bear raid (the POR) the word “bear market” surfaced and was now universally recognized as such. The Goldman raid just happened to be the trigger, and it was now collectively recognized as a bear market. Here is the significance of the POR, it gives us a stake in the ground to know where we are in the bears life cycle. Recall that after the POR a market then undergoes a prolonged consolidation. After this consolidation it may or may not have a BMR, but it then enters into a phase III after investors become sufficiently exhausted. In our current market we sparked a BMR after the post POR consolidation which lasted 12 weeks. So that’s where we are today, the question of whether its a new bull or still a bear is a case of Sherlock Holmes and the dog that didn’t bark. The post POR consolidation was followed up with a BMR, but we have not fulfilled the psychology and the liquidating price action of a phase III. In other words, the dog never barked.

The second factor is we have never had a prolonged period of illiquidity. In the twin crashes of April/June 2013 we only had 1-2 days max or little or no bid action. Previous bears have had up to 2 weeks of severe market stress with few bids offered. This is where the market experiences the dynamic of “comical” selling. That’s where investors are so distressed that they pick up the phone or grab their mouse and sell at any price, hence the name. The market undergoes truly comical trading with jokingly absurd price drops. This is full blown capitulation, and despite the current bears annihilation-class declines we really have not had this type of selling…yet. The psychology that accompanies this type of selling is that which I described in the previous flush paragraph.

The third factor indicating the bottom has not arrived is we have not yet seen the full work of the bear. We have not yet seen truly shocking news and events that rock the industry. These events surface at the bottom of phase IIIs but they have not yet occurred. Viscous bear markets see outright corporate liquidations at the bottom, surprises are to the downside. Not only do we see mergers and acquisitions of the weak sisters but we see bond defaults and companies entering into chapter 7 bankruptcies. The 10 year continued ascent of gold allowed wasteful practices to go unchecked. Over time, the industry morphed into a reckless uneconomic basket case of excess. These excesses became so extreme, the orebodies so low grade and the balance sheets so unsound that only a full phase III purging is capable of rectifying the distortions and laying the foundation for a sustained secular bull cycle. By the year 2000 the industry had wrung out all the excesses from the 1970s bull market in precious metals and it took a full 20 years to do it. From a beaten down level of $254/Oz gold it then embarked on an 11 year run to $1920/Oz. From 2000-2007 the PM sector became a go to alternative to the general stock market. The PM stocks soared and the excesses began to build. The concept of a well positioned mining company began to change. Previously an ideal company had a proven orebody and non-levered balance sheet, however as gold marched upward and government money printing increased the ideal company became one with low grade and large ore bodies in order to maximize the number of ounces in the ground. This was the most leveraged means to gain from constantly increasing gold prices which “had” to continue higher given the reckless printing of money by the central banks of the world. This shift in psychology incented managements to embark on acquisition and development sprees, scooping up big low grade deposits. Like the sub-prime housing boom in the USA this process corrupted the system. Engineers inflated estimates of value and understated development costs just as housing appraisers inflated the values of homes. The result was grossly uneconomic projects and over issued stock placements. This is the “junk” that Mr. Bear needs to clean up and it is the phase III that finishes the job. The amount of excess is directly proportional to the amount of downside pain required to correct the excess. So after a 10 year bull market it should not be surprising that it may take a 3-4 year bear market to clean up the mess.

The Step Sum

Finally, I would like to introduce the most compelling evidence that the bottom is not yet in. It is in the form of a new technical tool to evaluate the psychology of the market. It’s called the Step Sum. It has been developed by Mark Lundeen and it offers a unique insight into the psychology of the market. The SS offers a powerful clue that we have not seen the bottom, because it has not yet collapsed towards the price action which would indicate the psychology of capitulation. I recommend getting on Marks email list as he is a well seasoned observer of markets and offers insights not found anywhere else

Mark Lundeen

The step sum is simply a running total of up vs. down days and it reflects trader psychology. The unique insight that the step sum offers is that at the end of a bear market, the step sum normally collapses as the reflection of trader capitulation. The step sum usually remains steady thus diverging from the downward price action until the final capitulation stage. In the last stage when investor psychology finally becomes exhausted the step sum collapses, reflecting the final clean-out in psychology. This shows as a lopsided accumulation of down days. Here is how Mark describes the Step Sum’s utility: The step sum is a market sentiment indicator that provides an insight into the market’s psychology, and typically when step sum trends are out of step with the price trends, it’s the price trend that should be trusted.

In this first chart Mark shows us the step sum action over the entire secular bull and bear cycle from 1969-2000. Note how the step sum reflected the rise from 1969-81. Also note that in the 19 month 1975-76 cyclical bear the step sum correlates highly with the decline in the gold price reflecting an early break in psychology and lack of belief in that bull market. This is something it did not do in the upcoming 20 year bear market as bullish psychology had become well entrenched. Next observe how it refused to align itself to the price level until the final stages of the secular decline from 1980-2001. This shows how stubborn the psychology remained until the very end. It remained solid until 1996 where it finally gave in thus reflecting investor pessimism and exhaustion.

Lets see how Mark describes the step sum action in this chart: We can see when the gold bulls gave up their dreams of ever seeing gold resume its bull market, at the dotted line (1996) marking the beginning of the collapse of the step sum. Not surprisingly, this collapse in bullish sentiment in the gold market occurred just as the high-tech bubble entered its mania phase. Note too that gold’s step sum continued collapsing until 2001, when it then reversed to the upside. We see an eight year bear box beginning in 1988. The optimism of the gold bulls of the 1970s took a long time to die, as we see in the bear box below that began in the 1980s and didn’t terminate until the 1990s.

Now let’s move on to our current bear market in the Precious Metals. We can see how the Step Sum ( SS ) reflected the rise over the entire length of the bull market. Also observe how in the decline of 2008 the SS was late to reflect the decline in gold. It was not until 2-3 months before the bottom that investor psychology gave up and the SS declined thus reflecting investor capitulation. Now here comes the main insight of the SS when you look at the decline since the top of the bull in 2011. The SS has stayed solid and has NOT reflected investor capitulation! The huge declines in the gold stocks and gold has not even put a dent in it! The key message that this is delivering is that we have not yet had the requisite shift in investor psychology to drive down the step sum as a reflection of investor capitulation. Of course it is in phase III that this precise outcome occurs.

Here is what Mark has to say about final SS capitulation: So what good is the step sum when all you needed was price information to tell you the bulls in the gold market were losing money? Because when the step sum’s plot collapses downward toward the price trend, as it usually does in bear boxes, it tells us the bulls have capitulated in the face of reality and the correction is coming to an end.

Here is a close up of the SS intransigence through mid March. At what point will investor psychology “give it up” and allow the SS to align with the price action?

Its my premise that the answer to this question is that only after we violate the December 2013 lows will the SS collapse. We have expended investor energy and sentiment through almost 3 years, a 70% decline encompasing three BMRs , but we still need the final purging kicked off by a violation of that June 2013 , December 2013 double bottom to deliver demoralization to the party faithful gold bug crowd. That will usher in the final phase III annilhilation which clears the deck and establishes the base for a prolonged second half of the great 21st Century Gold Bull Market brought to you by the Western fiat decline.

Personally I take no joy in coming to these realizations , as by nature, I too am a goldbug .
For years I have been active in the gold community and travelled to precious metals mining meetings.
I count those in the industry and many precious metals investors as my friends . I look forward to
seeing this bear market finish its ugly business and seeing the precious metals investors again rewarded
for their faith .

Plunger

This is an excerpt from Tonite’s Saturday Evening Special

A Really Instructive Chart for Students of Chartology :

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This next chart for the COMPQ I call my HISTORY CHART as it has all the interesting things that has happened during the last 35 years. It’s easy to forget some of these events but when your living through them it makes an impression on you. You can see where two wars started, the 1987 crash and other events that seemed like the end of the world at the time but in hindsight they were just another piece of puzzle following the price action to where ever it would lead us

Rambus

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Posted here in Public Form

This chart can be viewed by anybody who visits www.rambus1.com

Permission to share granted

Fully (Scribe)

Before we look at tonight charts I would like to congratulate the folks that are taking the initiative by locking in some of their profits based on their own risk tolerance. Taking profits is a hard thing to do sometimes as greed can get in the way of rational decision making. Risk tolerance iS an individual thing Only you can know the answer. If you took any of my trades last Friday then you have some decent profits right now and depending on your risk tolerance you may want to sell some of your stocks or all of them. JDST is up almost 36 % in less that a week. Most investors would jump at the chance to cash in those kinds of profits in the course of a years trading so keep that in mind. There are going to be many more trades to come. The thing is, once you make a decision to do what is in your best interest, live with it. Don’t do the blame game or I shoulda done that or I coulda done this. Take responsibility for your own personal decision. This will help you further down the road when you are on your own.

I will place my sell/stops where I think is the best place based on the Chartology. We will also have a place on the sidebar which Sir Fully is working on right now that will use a mechanical approach. So you will have several options in which to make your own personal decision on what is best for you.

Lets start by looking at the GDX two hour chart that shows what is obvious now, a bull trap, above the breakout point. Put that false breakout in your memory bank as it shows how a failed breakout can lead to a much bigger move in the opposite direction. As you can see that is exactly what has happened. Notice the little but subtle clues that took place after the false breakout occurred. Whenever you have an important trendline, like the top and bottom rails of the blue triangle, always look for a backtest even if there is  a false breakout and prices return back inside the pattern. Note the backtest to the underside of the top rail of the blue triangle once the false breakout price action fell back inside the blue triangle. There was another backtest last Friday when the blue triangle broke down. That is where we took our initial positions in DUST. So even though a pattern is broken that doesn’t mean the trendlines are no good anymore, as they may still play a role in the new move that is taking place.

As I have mentioned many times in the past, whenever you know exactly what has happened to a particular trendline, in a chart pattern that goes wrong, always use the new information to tweak your trendlines. Sometimes it may just be a small tweak that shows exactly where the breakout and backtest occurred. Other times it may be a much bigger tweak as with the false breakout on the GDX chart that now gives us a totally different perspective. From what looked like a positive breakout move to a reversal pattern in just a matter of a few day shows you why you can never let your guard down when it comes to the markets. By not giving up on the false breakout, like so many investors who get discouraged when things don’t go exactly as planned, I was able to see a 5 point point bearish expanding rising wedge reversal pattern. Yes we gave back most of our gain but we survived to trade another day unlike most that are still hanging on for dear life waiting for the rally to bail them out. Our Model Portfolio is safe and sound in cash waiting to be deployed at some point in the future along with the Junior Portfolio. Both of those portfolios had small gains that were protected. As you probably know by now the Juniors are getting hammered to no end right now and many that bought them have no clue what is taking place. You do and that is most important from my perspective.

Lets look at another daily chart for the GDX that shows our top, 5 point reversal pattern, and the sharp decline that has followed. You may recall the inverse H&S bottom that led to the three month rally. As you can see I’ve extended the neckline to the right hand side of the chart that may offer some initial support on this decline. Today’s price action for GDX stopped right on the neckline extension rail. As I mentioned earlier, even if the GDX breaks below the neckline extension rail we can still use it to look for an entry point to buy more DUST if things work you that way.

This next daily chart for the GDX shows a potential very bearish setup that maybe unfolding right before our very eyes. I know it doesn’t seem like a fast moving market, it’s all relative, but when you have a down sloping chart pattern in a downtrend that is usually a very bearish setup. If… If this recent false breakout turns out to be the fourth reversal point in a possible bearish falling flag, this would be a halfway pattern as measured from the breakout from that massive H&S top. Keep in mind I’m using the GDX as a proxy for the rest of the precious metals stock indexes. The top and bottom rails of this potential falling flag are exactly parallel.

This last chart I would like to show you for the GDX is the long term weekly look that shows the massive H&S top formation that took over three years to complete. You can see how nicely this possible bearish falling flag fits into the big picture. Using my two different measuring techniques I can tell you the price objective would be around the 10 to 12 area. You may remember that area came up when we were looking at a different possible halfway pattern awhile ago. I don’t want to put too much positive spin on this potential huge setup but if you look at the top of the right shoulder, on that massive H&S top, and follow the price action down to the first reversal point in the blue falling flag halfway pattern, I would expect a similar move starting at the 4th reversal point we just put in that would take the price down to the 10 to 12 region. That would be the impulse measuring method. There is still a lot of work to do but the potential for a big payday is there if we play our cards right.

Many of our longer term subscribers know I was originally looking for a consolidation pattern in this area that would be a halfway pattern. Sometimes charts patterns can morph as I have shown you above that can give a false look to what is actually happening. During, what now looks like a three month counter trend rally, there were many potential double bottoms forming that gave the appearance of a major low being formed. After last weeks performance that now looks unlikely. I will start posting more charts during the day tomorrow to show you why this huge potential has a strong possibility of playing out to our advantage. Stay tuned and all the best…Rambus

As we all know last week was a tough week in the PM sector. The real question we have to ask is whether this was just a short term correction in the uptrend that started at the December low or is this the end of the three month rally? We’ll look at some charts to see if we can answer this question.

Lets start with the BPGDM chart that I showed you last week which was real close to giving a sell signal. We were just waiting for the 5 dma to cross below the 8 dma to confirm the sell signal. We got that last Friday so it’s officially on a sell signal now. The red circle shows the BPGDM is down to 36.67 with the 5 dma at 39.33 and the 8 dma now the highest at 40. This is the alignment we want to see for a sell signal.

The precious metals complex has been in a trading range since the June low made last year. There is still no confirmation yet if this sideways trading range is a double bottom reversal pattern or just a consolidation pattern. The trading range on gold has had three reversal points so far as you can see on the chart below. I’ve been looking for the price action to reach the August high made last year at the 1430 area where we would then sell regardless if gold was going to move higher. Everybody and their brother knows the 1430 is a hot zone and will be selling. I had originally labeled the red rising flag as a bullish rising flag as it was forming as a halfway pattern with a price objective up to 1430 which fit in perfectly. You can see the red rising flag had a false breakout through the top rail and turned down hard breaking below the bottom red rail. I’ve renamed the red rising flag to a bearish rising flag and moved the 4 with a question mark down to the top of the red rising flag. In these big consolidation patterns you will always see some type of reversal pattern form at the reversal points. As you can see reversal point #1 started out with a little unbalanced double bottom that worked into an inverse H&S bottom. Reversal point #2 built out a H&S top. Our last bottom,#3 started out with another small double bottom that ended up being the head of the inverse H&S bottom. Now here we are back up toward the top of the trading range where the price action has fallen short of reaching the price target of 1430, and has just built a 5 point bearish rising red flag. Is this going to be the reversal pattern that puts in the 4th reversal point in this nearly 9 month trading range?

This next chart shows where the green 65 wma and the most recent high touched, red arrow. That 65 week moving average always worked as support during the bull market years. Is it now going to reverse its role and act as resistance during the bear market? Sometimes it can be too painfully easy not to pay attention to something, as simple as a moving average, that worked miracles during the bull market years. Sometimes it can be that easy. Also if this is the 4th reversal point in the red triangle we are catching it at the optimal time to take advantage of a move down to at least the bottom red rail. If gold can takeout the top red rail and the 65 wma to the topside then we’ll know right away that gold is much stronger than what it appears right now.

If gold is topping out right here we should see another black candlestick show up this week. There could be some volatility during the week but I would like to see a black candlestick form by the end of this weeks trading to add a little more weight to a downside move beginning.

If gold is actually building out a triangle consolidation pattern then that means the neckline of the very large H&S top will be broken to the downside. The neckline is still quite a ways down around the 1200 area so there is plenty of time to watch how things unfold over the coming weeks and months.

Lets take a look at silver that is starting to crack the strong area of support we’ve been watching at the 20.50 area which is the top of the blue 5 point rectangle reversal pattern. You can see the price action came down to the top of the support and resistance zone and had a good bounce but ran out of steam and now silver is starting to penetrate that brown shaded support and resistance zone which it shouldn’t be doing. The situation can still be saved if silver can start to rally strongly from here but support is starting to crack.

Below is another weekly chart I’ve been showing you that has the lite blue arrows that shows the mid rail support and resistance areas. As you know I’ve been watching that 20.50 area like a hawk hoping it would hold support. As you can see it closed the week below that critical mid line of support. I’ve added a red arrow that shows what happened the last time the center rail failed to hold support on the 6 point rectangle consolidation pattern above. That red arrow, on the blue 6 point rectangle, is the actual spot that began the big impulse leg down to eighteen. Is our current failure to hold support at the center dashed line the actual beginning of the next impulse leg down similar to what we seen on the blue rectangle?

With the potential support rail being violated this sets up the possibility that a triangle pattern is now forming. I can guarantee you that this possible triangle is not on anyone’s radar screen yet. The fourth reversal point is now just beginning to show itself.

If silver is building out a triangle consolidation pattern lets see how it fits into the big downtrend channel that has been in place since silver topped out in April of 2011 almost three years ago already. As you can see it fits perfectly.

Lets take one last look at silver that shows how our potential triangle, that is now forming, may play out in the very long term look. As I’ve stated several times there is some beautiful symmetry is taking place on the long term monthly chart for silver. As you can see on the chart below the potential triangle is the right shoulder of a very large H&S top. I know it maybe hard to wrap your head around what this means for silver and the precious metals complex in general. If silver along with gold break below their respective necklines, I’ve been showing you, there is going to be one more hard down phase that will virtually wipe out most of the bull market gains off the books. This would then be a round trip from start to finish. How many investors do you think sold all their gold and gold shares in 1980 when gold and silver topped out? I would bet very few actually sold anywhere near the top as the same hype we have heard in this bull market was the same back then. Maybe this time will be different but silver and gold will need to show us some strength by making a new higher high at some point to reverse this downtrend that has been in place for close to three years now.

If gold and and silver are going to make new lows we need to look at the US dollar for any clues it can give us. The first chart I would like to show you is the possible H&S top with the Diamond head. As you can see the price action reached the neckline again just recently and has bounced up. We know that is one hot neckline. Still no confirmation that the potential H&S top is valid.

I have many charts for the US dollar that can show either a bullish or bearish outcome. Lets look at one more chart that shows a bearish setup. The US dollar broke down out of a blue bearish rising wedge and then built a red triangle as the backtest. You can see the dollar backtested the bottom rail of the red triangle this week. So far it’s still holding resistance.

Now lets look at several charts that may show a positive outcome if support can hold. Below is a very long term chart for the US dollar that is showing a possible very large blue triangle forming. If the bottom rail of the red consolidation pattern can hold support, right here, then the US dollar should be able to rally at least back up to the top red rail at a minimum. This is a critical time for the US dollar.

Below is basically the same chart but this time I moved the first reversal point up to the 87 area which gives us more of a bull flag type pattern. The red trading range is still the key as to which way the US dollar is eventually going to break. So far the bottom red rail has been holding strong support.

This last chart I would like to show you is one I built quite awhile ago that shows the two fractals or big base #1 and big base #2. The dollar has been moving at a snails pace between the top down sloping rail and the support and resistance rail on the bottom. Eventually it’s going to have to break one way or the other and whichever way it breaks out a good trend should develop.

It looks like the precious metals complex maybe at another inflection point right here and now. Last weeks price action may have ended the three month rally that began at the December low. I think we’ll know shortly if this is indeed the case. Stay tuned as it can get pretty wild at these turning points sometimes. All the best…Rambus

I’ve shown you several comparison charts with the HUI, GLD and SLV that shows they all tend to breakout at roughly the same time. One can sometimes be stronger than the others but they tend to breakout at the same time. This week was no exception. All three broke out of their consolidation patterns this week. Who would have thunk it.

First, lets look at SLV that shows the bull flag we’ve been following since SLV  broke out from the 5 point rectangle reversal pattern. Yesterday the price action hit the top blue rail and fell back, just as you would expect on the inital hit. The question was how many bears were on the other side of that top blue rail? Today answered that question without a doubt. The big gap up this morning told us the bears were gone and they are now in retreat looking for new high ground they will try to defend. Below is a 2 hour 4 month chart for SLV that shows the breakout today and the backtest.

Below is a 2 hour 4 month chart for GLD that looks totally different than the SLV chart. They are different but similar if you look at the base or reversal patterns and the consolidation patterns. Here you can see GLD formed an inverse H&S bottom as its reversal pattern. As we all know gold has been stronger than silver so we should look for a strong consolidation pattern. The strongest consolidation pattern that I know of, and nobody recognizes them, is a consolidation pattern that points in the same direction as the trend. As you can see on the SLV chart above the bull flag slopes down against the uptrend. This is what a normal consolidation pattern looks like. When a stock is in a very strong trend it will slope with the trend instead of against it.

Today GLD gapped above the top rail of it bullish rising flag consolidation pattern and did its backtest just as SLV did.

Below is a 2 hour 5 month chart for the HUI. The last time I showed you this chart we were looking for the 6th reversal point as shown by the 6 with a question mark. As you can see the HUI rallied back up to the top blue rail and declined back down about half the length of the rectangle where it found support. That’s all the strength the bears had left so the bulls wasted little time in taking control of the situation. The bears are exhausted and need a new area to defend.  The bulls gapped out of the rectangle and are now above horizontal resistance. Folks, from a Chartology perspective, it just doesn’t get any prettier. At some point we’re going to see a consolidation pattern form that will be much bigger than these little ones that have built out so far.

If you recall I mentioned how we were reversing symmetry backup vs how we came down. With more time on this chart now you can begin to see the reverse symmetry taking hold as this rally progresses. I’ve labeled all the reversal points so you can see the battle that goes on between the bulls and the bears. Each reversal point is a skirmish and when the consolidation pattern finally breaks, to the victor goes the spoils. You can see the bears were in control on the way down but since the blue 5 point bullish falling wedge reversal pattern broke to the upside the bulls are now in control.

Weekly comparison chart.

In my humble opinion you can spend every waking minute trying to figure out why is gold and and PM stocks going up. Is it because of inflation, deflation, copper, the stock markets, currencies , War or a hundred different reason’s? If you just follow the price action and devote the time spent trying to find a reason for why, you will be way ahead of the game. You don’t have to know the answer to the question everybody is trying to answer. It’s irrelevant. The answer is right there in front of you if you take the time to understand what the chart is telling you. All the best…Rambus

TRX has built a beautiful inverse H&S bottom and is now in the process of breaking out through the neckline. The MACD has turned positive with the blue Histogram now above the zero line. I’m going to buy it at 2.70 for the Extra Trade Ideas link just below the Model Portfolio stocks.

The weekly chart shows the inverse H&S bottom, that I just showed you on the daily chart above, that is forming right on the 2008 crash low as have so many other precious metals stocks. This is exactly the place you want to look for some type of reversal pattern. Notice the huge positive divergence with the RSI at the top of the chart. Also the MACD has a positive cross and the blue Histogram is above the zero line. Everything looks lined up and ready to go.

The long term monthly chart shows a huge trading range that goes back many years. Buy the bottom and sell the top until something changes. The monthly indicators are still slightly negative but are getting very close to turning positive. The monthly indicators let you know if your in an uptrend or downtrend which is key to understand. For the most part you want to trade in line with the big trend and scalp the counter trend.

I’m getting the feeling that some of you are in over your heads when it comes to the markets. Playing the stock markets is nothing more than psychological warfare. It’s all about emotions. When you put money and then leverage on the playing field many investors loose sight of the bigger picture. As soon as the markets don’t go their way they start thinking with emotions instead of what discipline they use to trade.

The HUI is just starting its fourth week in this congestion zone between 236 and 250 with many reversals taking place in that tight trading range. We don’t know 100% for sure if this is a consolidation pattern or some type of topping pattern that has been building out. Our discipline, Chartology, strongly suggests this is a consolidation pattern forming but there are no guarantees this is the case until we get confirmation one way or the other.

If this congestion area is wearing you out then you are way too leveraged and need to cut back on your position size. So far this has been just a mild 14 point trading range on the HUI that one should be able to cope with without getting all emotional wondering when the pain is going to end. Folks, this trading range is so small it doesn’t even show up on a weekly chart yet. How you’re coping with this little trading range should tell you of your own psychological makeup.

If you are having a hard time dealing with this trading range you really need to think about cutting the size of your positions so that you can think with a clear mind. If the HUI trades down to its 50 dma will you be able to hold on? If the answer is no then you really need to reduce your position size as soon as possible. Every trade doesn’t have to be a home run like so many think.

We have three different portfolios ranging from the Model Portfolio which is conservative. The Junior Portfolio which is a little more speculative and then the Kamikaze Portfolio which is the highest degree of speculation. The Kamikaze Portfolio equals high risk for high reward. Make sure you understand what that means. HIGH RISK – HIGH REWARD. Most investors don’t have the emotional capability to play in the Kamikaze Portfolio. Believe me there is nothing wrong with that. The Juniors are offering us a good lower risk and high reward opportunity if one can hang on through the draw downs. Then there is the Model Portfolio that will do very well if we are indeed entering the second leg of this secular bull market.

So, be honest with yourself and decide which is the best way for you, personally, to invest your hard earned money. Keep in mind this isn’t a child’s game we are play here. We are going up against the brightest minds in the world that want your money. They could care less if you loose every last penny to them. For them it’s like taking candy from a baby. The inexperienced get eaten alive before they even know what hit them. So please keep your leverage to a minimum and trade according to you own psychological makeup so you can stay in the game long enough to learn something. All the best…Rambis

In this Weekend Report I want to take a good hard look at silver which has been the laggard in the precious metals complex to see if there is something technically wrong. If you been following the precious metals complex for any length of time you’ll know that silver can be contrarian at times. It likes to start out slow and then once gold begins to pickup the pace then silver will play catchup. Once silver gets ready to move it can rally hard and fast catching up to gold and surpassing in on a percentage basis. So far since the December low silver is playing its game of Opossum by looking weak and not confirming the move in gold or the precious metals stocks. I think this is a deceptive look on silver right now. Lets see what the charts are telling us about silver and look for some clues that might help shed some light on what is really taking place right now.

The first chart is a six month daily look that shows our five point rectangle reversal pattern that has reversed the downtrend. The breakout was accompanied buy some really heavy volume which is what you like to see. I’ve added a brown shaded support and resistance zone that gives us a place to look for support now that silver has broken above that area of resistance. That zone is roughly 20.35 to 20.60 which should offer good support. One last important note on the chart below. Since silver made its breakout high it has been in backtest mode which is to be expected. In doing so it has created a small red rectangle halfway pattern to the downside. Using the impulse measuring technique I’ve been showing you the little red rectangle halfway pattern has a price objective down to the 25.53 area which is in the brown shaded support and resistance zone.

Lets now look back about one year that shows the two reversal patterns that are now in play. The first reversal pattern is the big blue five point Diamond reversal pattern. This Diamond has shown up on a lot of the PM stocks which has done a little morphing since we first started to recognize it last year. The other reversal pattern is the blue five point rectangle reversal pattern that we looked at on the chart above. We have two – five point reversal patterns in play right now that suggests a decent bottom should be in place right now.

Lets look at another daily chart for silver that is about a year long that shows us another positive development. When silver broke above the brown shaded support and resistance zone it also took out the top rail of a six month downtrend channel along with the top rail of the 5 point blue rectangle. If you look real close you will see that silver backtested the top rail of the downtrend channel, around the 20.50 area, for just two days before it shot higher. It now looks like silver is going to backtest the brown shaded support and resistance zone, from the topside, just as it did back in October of last year. Note how fast silver moved up last August when it was ready to go. If you’re not positioned before a move like that it’s hard to get on because there is no pullback. You either plug your nose and jump in or you miss the move.

Lets look at one more longer term daily chart for silver that puts the downtrend channel and the blue five point rectangle reversal pattern in perspective. I would like to focus your attention to the bottom right hand side of the chart that shows our current price action. There are three possible areas of support that intersect right at the 20.50 area. The first one is the top of the blue rectangle. The second is the bottom rail of the red bull flag that is made up of the little red rectangle halfway pattern that I showed you on the first chart above. The third possible area of support is the 50 dma that comes in at 20.36.

Now lets take a look at a weekly chart that starts putting the big picture into focus. This weekly chart shows the rally up to the 50 area and the bear market that has ensued. After breaking down from the unbalanced double top silver went right into a six point rectangle consolidation pattern that lasted almost two years. Whenever you have a horizontal trading range or rectangle I always look for a mid rail that forms in the center of the rectangle. Sometimes these mid rails will be exactly in the middle and sometimes they can be offset just a bit either up or down from the mid point. As you can see on the upper six point rectangle the center blue dashed  rail is pretty close to the center as shown by the light colored blue arrows. What the blue arrows are showing is the tops and bottoms which you connect your center line to. Above is support and below is resistance. As you can see in our current horizontal trading range the mid line is a tad lower as shown by the thin blue arrows. It comes in at, you guessed it, 20.50. The black dashed down sloping trendlines shows what happens when they get broken to the upside. As you can see there is generally a very strong rally backup to the top of the trading range. So far silver is four weeks into its breakout move above its black dashed downtrend rail. Hopefully when the backtest gets finished it will waste little time rallying back up to the top of the trading range between 25 and 26.

Lets look at the monthly chart that shows the very large uptrend channel that silver has built out over the last 12 years or so. The two big blue patterns make up the width of the uptrend channel with the smaller red secondary patterns making up the rest of the bull market in the move going into the April 2011 top. Whenever I see a chart like this, that has several smaller consolidation patterns that form in an uptrend, and then the stock makes a much bigger consolidation pattern, I always think of the bigger consolidation pattern as a halfway pattern. This can be on any time frame. This is one of those “WHAT IF” moments. What if this three year blue bull flag is a halfway pattern to the upside. What would the price objective for silver be if this is the case? If this three year bull flag is actually a halfway pattern in the secular bull market, that the precious metal complex has been in since the beginning 2000, then the price objective would be around the 200 area give or take 20 dollars. That’s a long time from now but it’s a possibility. Right now we have to worry about the 20.50 area holding support and take it one step at a time.

The last chart I would like to show you for silver is the quarterly chart that shows all the history going back to 1970. You can see why the possibility for 200 isn’t out of the question. Silver has been reversing symmetry back up to how it went down after the 1980 all time high. Its been making a series of H&S bottoms with the third and largest H&S bottom working as support as silver is in backtest mode right now. Also silver could be forming a very large cup and handle with our blue bull flag being the handle. The first thing we need to see happen is for silver to breakout of its bull flag then takeout the all time high at 50. So there is a lot of work to do but the possibility is there in the long term picture. Note how big our current blue flag looks compared to any other consolidation pattern on this very long term chart.

In the very short term silver needs to hold support around the 20.50 area and then rally strongly up from there. If it can do that then our first price objective will be the 25 to 26 area which is the top of our recent high in this consolidation pattern and the bottom of the six point rectangle that formed after silver put in its major top in April of 2011. So we wait for silver to shows us her hand. All the best…Rambus

As I promised you last night lets look at the GLDX, Junior Gold Stock Explorers etf that maybe one of the hottest areas in the markets right now. Tonight I’ll show you the two different measuring techniques I use to get an idea of where the price may move once a breakout is in progress.

The first method I call the breakout to breakout method which the name implies. You can use this method when you have a top, bottom or consolidation pattern below your current consolidation pattern. Using the GLDX we see this is the case. We have the red bullish falling wedge that formed below our current blue triangle. If this plays out according to plan the blue triangle will be in the middle between the red bullish falling wedge and the price objective up to the 19.50 area.

To measure the blue triangle as a halfway pattern I just take my fib tool and measure the distance from the breakout from the red bullish falling wedge to the first reversal point in the blue triangle, blue arrow. You do this with any consolidation pattern, whether it’s a rectangle, wedge, Diamond or whatever the consolidation pattern is. You then take that measurement and add it to the breakout of the blue triangle halfway pattern to get your price objective up to the 19.50 area.  Sometimes these measurements can be dead on the money and other times fairly close. It gives you a place to look for other signs of where the impulse move may run into resistance. In this case you can see a top that was formed last August in the 19.50 area so that is another good clue that the breakout move should go up into that area.

Note the MACD just crossed with the Histogram moving above the zero line along with the slow stoch also crossing. This breakout is being accompanied by some nice big black volume bars also. As you can see today’s price action is testing the high of the blue triangle which is encouraging. So there are a lot of positive things going on with this little junior stock index.

The other method I use to measure a price objective I call the impulse method as it’s measuring the equal distance above and below a halfway pattern. Using the same GLDX chart we are going to measure the blue triangle as a halfway pattern using the impulse method. Again, take your fib tool and measure from the last reversal point in the previous consolidation pattern, red falling wedge, which actually starts the impulse leg up. You then take that measurement and add it to the last reversal point in the blue triangle to get your price objective up to the 18.85 area as shown by the blue arrows. It doesn’t make any difference how many reversal points a consolidation pattern has, 4,6,8 or more, you always use the last reversal point in any consolidation pattern to measure for your price objective.

So between the two different measuring techniques we get a range between 18.85 and 19.50 with the previous high made last August also in that area gives us a place to shoot for. I know there are other measuring techniques that people use but for me this is how I like to calculate a measured move.

It’s been awhile since we looked at the US dollar that has been showing some weakness lately. The first chart is pretty cut and dried as it shows a big blue bearish rising wedge that had a clean breakout and backtest. It then went on to form the red triangle just below the bottom blue rail which as you know I view as a bearish setup. The price objective for a rising or falling wedge, many times is the beginning of the wedge. In this case the blue bearish rising wedge started to form back in the late summer of 2011 at the 73 area. You never know 100% for sure how the inter market analysis is going to play out but a decline, in the US dollar to the 73 area, could be a big catalyst for a large move up in the precious metals complex. We’ll know in hindsight.

Some of our longer term subscribers may remember this big 11 point Diamond reversal pattern that formed last year. This is a very similar setup to the big Diamond that gave me a clue that the HUI was in a very large topping pattern well before the price action broke down. I view the blue Diamond as the head portion of a big H&S top formation. I’ve added a neckline symmetry rail that is just a parallel line taken off of the neckline that often times gives us a place to look for a high on the right shoulder. As you can see it nailed the height for the right shoulder. The price objective is quite interesting for this H&S top. If the neckline gets broken to the downside the price objective would be down to the 73.50. This puts the price down into the 73 area as shown by the bearish rising wedge on the chart above. Again, we’ll know in hindsight if this all plays out but for the moment this is what the Chartology is telling us.

There is another area we haven’t looked at in awhile and that is the Uranium Sector. This area has also caught on fire. Lets look at the NLR, the Uranium etf, that shows the price action breaking out though the top rail of  a bullish rising wedge. This is a pretty impressive move taking place right now in this sector.

Below is a weekly chart for the NLR that shows all the chart patterns that have developed over the last 6 years. Note the big blue bullish falling wedge that broke out well over a year ago but it was a slow grind higher until just recently as prices have started to accelerate to the upside. Sometimes I’m still amazed at what the Chartology can show you sometimes before an event happens. Notice the red bearish rising wedge that had formed back in late 2010 around the 65 area. That vertical breakdown form that red bearish rising wedge was the Japan earthquake. That was the top like so many other commodities that have been in a 3 year correction that started in 2011. Three years is a nice long time for a correction to take place in a secular bull market. Maybe we’ll see inflation first and then deflation. It really doesn’t make and difference as we will be  following the price action to where ever it takes us. All the best…Rambus