Tonight I would like to show you some HUI to gold ratio charts that could give us a place to look for the ultimate low for the big cap precious metals stocks. So far these charts have been playing out for over five years. The first chart is a 5 year daily line chart that shows the blue 5 point triangle reversal pattern. That 5 point blue triangle reversal pattern has led the big cap PM stocks lower forming one consolation pattern after another. As this is a line chart the low for the 2008 crash low was .20. I’ve shown you many times, that when you have an important support and resistance zone or rail, a consolidation pattern can form above, below or right on that important area. Note the red bearish falling wedge halfway pattern that has formed just below the all important support and resistance rail on the bottom right hand side of the chart. Also note the breakout that just occurred that is signaling the next impulse leg down is just beginning. The two red patterns are halfway consolidation patterns that I’ll show you how they are measured in a bit.

This next  chart is a long term weekly look that shows the entire bull and bear cycle that began at the end of 2000 with that infamous 5 point blue triangle reversal pattern.  As you can see this ratio chart has almost completed a round trip. Notice the massive blue 5 point triangle reversal pattern that called the end of the PM stocks outperforming gold. It was and still is hard to believe, that that was the end of the out performance of the big cap PM stocks to gold. You can see the 2008 crash that occurred when the massive 5 point triangle broke down. Note the red 5 point triangle reversal pattern, that I showed you on the chart above, that formed when the rally off the 2008 crash low was finished. It has been all downhill even when gold went to its all time high in September of 2011 at 1920. I’ve been looking for the .13 low, that started the bull market back in 2000, to be hit at some point in time. That seems like the most logical area for the HUI to bottom but I will show you why I think this ratio maybe going lower before it’s all said and done. First the weekly chart.

This last look for the HUI to gold ratio chart is a 5 year daily line chart that shows the measured moves since the breakout of the 5 point triangle reversal pattern. So far the measured moves down have been deadly accurate as measured by the red rectangles. As you can see the red triangle was a halfway pattern as measured by the two red rectangles with one on top and one below. The lower red rectangle measured to the beginning of the blue bearish expanding rising wedge, red #2,  that is the start of the next impulse leg down that is slightly longer than the first one. Now we are going to measure the second impulse leg down as measured from the blue bearish expanding rising wedge. The first half of this measured move is the upper blue rectangle. As you can see we just broke out from the red bearish falling wedge that shows the measured move, as shown by the lower blue rectangle, has a price objective down to .08 with a time objective around May of 2014. This could very well be the annihilation phase that Sir Plunger has been describing. All the best…Rambus

It’s been several months since we took an indepth look at some of the more important currencies in the world. In this Weekend Report I would like to show you some important developments that have taken place that could be signalling a stronger US dollar maybe in the cards. Most of the currencies have been in a prolonged topping or consolidation pattern which some broke down awhile ago and some are still consolidating.

Lets start with the CAD, Canadian Dollar that has been showing a beautiful H&S top formation that broke down in May and has been in backtest mode ever since. The backtest took on the formation of a small red bear flag that finally broke through the bottom rail this past week. The last time I posted this chart I said it was a mirror image of the HUI weekly H&S top, complete with the neckline symmetry rail, that showed us the height for the right shoulder. Like the HUI this is a very large topping pattern that is going to be in play for sometime to come.

The XAD, Australian dollar, formed a very nice five point triangle reversal pattern that broke out to the downside in May of this year. Our first big clue that the XAD would break down was the completion of the red 7 point rectangle that formed out toward the apex of the 5 point triangle reversal pattern. As you can see on the chart below, even though you have a nice clean breakout, the backtesting process can take some valuable time to complete. This can be frustrating to live through but it doesn’t change the outcome of what that very large triangle reversal pattern represents. Which is a big top.

Before we move on lets look at the daily chart for the XAD that shows the beautiful 7 point rectangle reversal pattern. Also note the little H&S that broke out this week signalling the little counter trend rally is now reversing course.

The XBP, British Pound, looks like it’s morphing into a bigger triangle. The blue dashed trendlines shows the original triangle that had a nice clean breakout through the bottom rail and then the backtest at 158. Once the price action traded back above the bottom blue dashed rail that negated the breakout. As you can see the price action has been chopping very tightly within the apex of the original blue dashed triangle, and then broke out to the topside. The red circles shows you where I would expect the top blue solid rail to be place if this triangle is morphing into a bigger triangle. I showed you this in regards to the Yen awhile back.

While we’re on the subject of morphing triangles let look at the Yen’s morphing triangle and see how it turned out. First, the original triangle on the daily chart. Note the big breakout gap and the two backtests to the bottom rail that looked perfect.

This next chart for the Yen shows how I used the red circles to expand the original blue dashed triangle. It’s not a perfect science but normally when you readjust the bottom rail many times the top rail will need to be adjusted by the same amount. It’s a symmetry thing. As you can see the top solid rail only morphed about half of the red circle for its high and then the price action reversed back down breaking through the new solid blue rail signalling the triangle was complete. Note the last two long bars that formed at the apex of the new solid blue triangle. That was the final gasp before the triangle finally broke down.

Lets look at a few more charts for the Yen as gold seems to be following the Yen closer than the euro. The Yen made a beautiful H&S top before it broke down that led to a near vertical move lower. Our morphing triangle on the daily chart above shows you why that triangle is so important to the overall big picture. Note the near vertical move down from the breakout of the H&S top into the Blue Triangle. Many times how a move takes place going into a consolidation pattern, a similar move will occur when the price action exits the consolidation pattern. As you can see the Yen has now completed its third week in breakout mode in a near vertical move. I’m viewing the blue triangle as a halfway pattern until something tells me differently. This just maybe a coincidence but silver has now traded three weeks below its Diamond consolidation pattern.

Below is a comparison chart where I’ve overlaid gold on top of the Yen. As you can see we are getting a better correlation then if you overlaid gold on top of the euro.

On the chart below I’ve overlaid gold on top of the euro that shows a very strong negative correlation starting in September of this year. Up until that point they moved fairly close together.

The NZD, New Zealand Dollar, rallied up to the top blue rail of a now possible 5 point triangle reversal pattern. The pattern won’t be complete until the price action touches the bottom rail again. So the pieces of the puzzle are still being put in place that will eventually confirm to us what kind of triangle it will be.

The Swiss Franc was one of the first currencies to top out and in a big way. It went parabolic into its ultimate peak before it reversed symmetry all the way back down to the black dashed support and resistance rail at 100. Since hitting the big support and resistance rail at 100 the Swiss Franc has been building out what looks like a huge blue bear flag. It still has alot of work to do but as long as the price action stays below the top rail it is what it is.

Lets now look at the euro that has been one of the stronger currencies out there. This daily chart shows how the euro broke down below the bottom rail of a bearish rising wedge. It’s not uncommon, with a wedge pattern, that the price action can rally for a prolonged period of time just below the bottom rail of the rising wedge. As you can see it has been testing the underside of the bottom blue rail for close to a month now. A close back inside the rising wedge will negate this pattern. So far the bottom blue rail has held resistance.

This two year daily chart for the euro shows a possible 6 point bearish expanding rising wedge that is still a work in progress. This pattern seems the most logical one to me but until it’s complete I have to remain neutral on the euro.

The long term monthly chart for the euro shows a possible red bearish rising wedge forming within the much bigger blue falling wedge.

The last chart I would like to show you is the long term monthly chart for the US dollar that is showing it trading between two converging rails. The month of October showed the US dollar cracking below the thin support and resistance rail for just a short period of time, before it managed to climb back above it, putting the US dollar back to neutral. There are a lot of short term charts for the US dollar I could show you but for me this is the most important chart to focus on as there is less noise to contend with.

As a whole the currencies seem to be topping out in the big picture. Some have already completed their breakouts and backtests while others are still trading within their topping patterns. The US dollar seems to marking time just chopping around not doing much of anything at the moment. At some point the trend will reassert itself and there will be little doubt as to which way the US dollar is headed. In the mean time we just need to have some patience and wait for some further developments in the other currencies to help guide us along. All the best…Rambus

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Editors Note :

A Message from From Catherine Austin Fits :

Thank You Rambus

https://solari.com/blog/thanks-rambus/

Since Sir Fullgoldcrown, Sir Audept and myself created and opened Rambus Chartology two short years ago , I’m in awe of the number and quality of subscribers we have. We started out with no preconceived notion on what to expect and nothing more than a desire to help Precious Metals Enthusiasts navigate these treacherous markets as well as Teach the art and science of a Technical Analytical Technique we call Chartology. We didn’t know if we would get even one subscriber but for us it was a labor of love that we enjoyed. We now have subscribers from every corner of the world and many high profile folks that I couldn’t even have imagined would be interested in our little website.

My wife and I had the pleasure of having dinner Tuesday night with one of our subscribers, Catherine Austin Fitts. She was on her way home to Tennesee from California and wanted to know if we could meet for dinner here in the Ozarks. I was flabbergasted and said of course. We had a great meal at Gaston’s Resort and Restaurant on the White river, which is one of the best trout fishing rivers in the country. We ended up closing the restaurant down as time just flew by so fast. What a wonderful lady . We were very comfortable in her presence as she is very down home and incredibly well spoken

It’s not everyday you get to talk to someone who has been on the inside of Washington politics and see’s what is really going on. All I can say is that she’s on our side and is trying to make a difference as the video below will show.

Catherine Is President of Solari, Inc., the publisher of The Solari Report, managing member of Solari Investment Advisory Services, LLC., and managing member of Sea Lane Advisory Services, LLC

Her Biography is really something

http://www.dunwalke.com/catherine_austin_fitts.htm

Here is just one example of her work…a compelling interview entitled ” The Looting Of America”

http://youtu.be/gP6rny-E1Cw

and a picture we will cherish as a memory of a special nite with a special lady

On this Thanksgiving 2013 I am thankful for each and every member of our website

Thanks for the great time Catherine and I’m sure we’ll meet again down the road in the not to distant future. All the best…Dave

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THANK YOU RAMBUS…from Catherine Austin Fits

https://solari.com/blog/thanks-rambus/

In this Weekend Report I’m going to show you the Chartology of gold, from my perspective, for the last 17 years or so. As you know I don’t pay lip service to the cycle guys, Elliot Waver’s or the many different disciplines that folks use to analyze the markets. My goal is to give you an unbiased look at the markets strictly from a Chartology perspective that is unique for our site.

In this look at gold I’m going to use several different concepts that I’ve shown you in the past to try to give you a feel of where we maybe headed. We’re going to look at neckline symmetry rails, neckline extension rails, reverse symmetry and just your everyday support and resistance points on a chart. I hope to paint a fairly accurate picture of where the gold market may find an important low based on the charting concepts listed above.

1…NECKLINE EXTENTIONS

Before we look at gold I want to show you some of these charting concepts so you will have a better understanding of what I’m showing when we get to gold. The first thing I would like to show you is a neckline extension rail. Many times when a neckline is broken you will get an immediate backtest and then the move will take place. There is a saying I uses that goes like this, a neckline never dies it just slowly fades away. By that I mean you can extend the neckline way out in time and it can still be active even though the original move has completed and the price objective met.

AEM was one of the first big cap precious metals stocks to form its high and breakdown while the rest were still building out their topping patterns. There are three H&S tops on this weekly chart below but we’re just interested in the middle one that formed back in 2010 – 2011. After reaching its price objective down at 33 or so it then had a counter trend rally that took the price action all the way up to the old neckline that I’ve labeled, Neckline Extension Rail. As you can see AEM tried for several months to breakout above that neckline extension rail but failed. That failure created the head portion of another H&S top which reached its price objective down at the 25.62 area where its currently trying to form a blue falling wedge.

The very long term monthly chart for AEM shows our Neckline extension rail at the top of the chart with a much bigger one towards the bottom that could offer some support at the 12.79 area. Keep in mind this was roughly an $85 stock back in 2010. If one understood the Chartology of this stock he would have sold out at least when the H&S top broke down. I wonder how many PM investors are still holding on to this stock waiting for it to come back? I don’t want to say 1980 deja vu all over again but the point is one never knows when the long term move has been completed. Maybe AEM will end up going much higher than 85 in the very long run but if one has been holding this stock for the last several years its been a painful ride no matter how you want to spin it.

2…NECKLINE SYMMETRY SHOULDER LINES

Lets look at some neckline symmetry rails that are just a parallel line taken off the neckline and moved to the left shoulder high or low when you think there is a possibility of a H&S forming. It’s not a perfect science but it does give you a place to look for a high or low for a right shoulder. It is amazing tho how many times this works out. The massive H&S top on GDX shows a beautiful neckline symmetry rail that nailed the top for the right shoulder. When I see something like that it increases my confidence level that I’m on the right track.

NEM formed two very nice neckline symmetry rails, one back in the 2008 H&S top and one in our current H&S top. You can also see the reverse symmetry coming back down.

NGD had a nice neckline symmetry rail that showed the high on the right shoulder. As you can see each shoulder was made up of individual chart patterns which is common.

3…REVERSE SYMMETRY

Now lets look at probably the prettiest reverse symmetry chart I could find. Most of the precious metals stocks are reversing symmetry down vs how they went up during the rally off the 2008 low. If I had a hall of fame for some of these charts this chart for ANV would go in under the reverse symmetry category. Again like AEM this was a $47 dollar stock not that long ago. As fear is a more powerful emotion than greed you can see how this stock has come down a bit faster than it went up. What makes this chart so beautiful is the blue reverse symmetry triangles that are forming in the exact same location on each side of the rally and decline phases. As you can see the blue triangle broke out last week and now is headed down to the 2008 crash lows.

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With these three basic concepts in Chartology lets now apply them to the long term look at gold and see what they show us. The first chart for gold is a 17 year log scale chart with no annotations on it. I just want to show you how we will make this chart come alive by adding a few trendlines, in the right spots, to show what may take place going forward. When looking at this blank chart just notice that during the bull market years how gold made higher highs and higher lows all the way up except for the 2008 crash low that just slowed down the bull market for a bit. Note the price action since the high was put in in 2011. There is a series of lower highs and lower lows which by definition is a downtrend.

With this next chart for gold we’ll add a top and bottom trendline that encompasses the bull market. These two trendlines form an expanding rising wedge. Note how many times the top rail has been touched. The red circle shows a very important aspect to this chart. What it shows is the break down form gold’s bull market expanding uptrend channel complete with the backtest. Remember we are constantly looking for clues. The backtest was a very important clue as it shows the bottom rail to be HOT.

This next chart I will add a neckline extension rail made off the 2008 H&S consolidation pattern that now starts bringing this chart to life. On the chart above you can see how gold broke through the bottom rail of the expanding uptrend channel. The reason it bounced from that low for the backtest is because of the 2008 neckline extension rail.

Before we move on I want to show you the 2008 H&S consolidation pattern in all its glory that I had a feeling would come back in play at some point in the future. When you look at the monthly chart above the 2008 H&S consolidation pattern  doesn’t look like anything special but looking at it up close and personal it gives a whole new meaning to how beautiful Chartology can be sometimes. Of all the H&S patterns I’ve charted through the years this one on gold has to be one of the most symmetrical ones I’ve ever had the privilege to chart. They say beauty is in the eye of the beholder. Some of you will look at this next chart and say what is so special? We touched on neckline symmetry rails in the first part of the article on the GDX and NEM. If you can take just five minutes to study this chart below you will see the beautiful colored symmetry rails and how they played out on each side of the H&S. I wrote an explanation on how to read the H&S consolidation pattern on the chart. Just divide the H&S into, from the head straight up to the neckline where you will see two black arrows. The colored neckline symmetry rails are all the exact same angle. Follow the colored arrows down on the left side and then do the same thing on the right side chart. You will see each side of the H&S consolidation pattern, the lows and highs correspond to each other. Another very important feature on this chart is the big fat neckline. Note the first breakout and backtest that was spot on. Gold then had a good rally that stalled out and the reaction found support again on the big fat neckline at 1040. That is the point that led to gold’s final major rally phase up to 1920, its bull market high. One last point on this chart. Follow the top brown symmetry rail all the way from the left side of the chart to the right side of the chart. Note how the smaller H&S bottom that formed on the big fat neckline, as a big backtest. The left and right shoulders formed on the brown NL symmetry rail. Watching this unfold in real time was quite exciting as I always had a place to look for support which always showed up exactly when it needed to. Anyway, from my perspective I find the symmetry to be quite amazing which is why I’m so attracted to the Chartology of the markets.

This next chart for gold shows how I’ve extended the 2008 neckline to the present day. I will now show you how the neckline symmetry rails are working in regards to our current situation. I showed you earlier on the GDX and NEM how the neckline symmetry rails showed the top for the right shoulder. We are now reaching a most critical point in regards to where gold maybe heading over the intermediate term. If the neckline extension rail, made off the 2008 H&S consolidation pattern, extended out to our current time frame, maybe showing us a very large H&S top in play. What the neckline symmetry rail is showing us is a possible high for a right shoulder. What is interesting is that the neckline symmetry rail, that shows the bottom for the left and right shoulders on the 2008 H&S consolidation pattern, is also the same angle as our current H&S symmetry rail that is showing a high for our current and possible, much bigger H&S top left and right shoulders. All the neckline symmetry rails are the exact same angle as the 2008 big fat neckline.

This last chart for gold puts all the pieces of the puzzle together using the Chartology concepts we discussed earlier in the article. The brown shaded area shows where we might see an important low for gold based on the price objective for the H&S top and the previous low at 680. Stocks usually come down faster than they go up so by looking at the reverse symmetry down it could take anywhere from 6 months to a year before we see the bottom but that is only a guess at this point. I also expect a small consolidation pattern to form about halfway down from the breakout of the neckline to the brown shaded area low.

This is how I see things playing out over the intermediate term. Right now the most important area to focus on is the neckline extension rail made off the 2008 H&S consolidation pattern that comes in at 1200. I will be watching with great interest how we inter act with that 1200 neckline. That is the whole ball game right there. I would expect an initial hit at 1200 with a small rally followed by a break of the 1200 area followed by a brief backtest to the underside and then the fall away. That would be the perfect Chartology way to break 1200 and the possible big neckline that would complete a massive H&S top similar to the HUI and the rest of the Precious metals stock indexes. We now have something concrete to watch and pay close attention to. The market will tell us of her intentions, we just have to pay attention to what she is saying. All the best…Rambus

In this Weekend Report I would like to take a fresh look at the precious metals complex again as things are still evolving in this area. I want to look at the GDX as our proxy for the rest of the PM stock indexes as it trades with the most volume and probably gives us a better feel for where the big caps are headed. As you know we’ve looked at several different possibilities for our recent consolidation zone that are still valid as consolidation patterns. At the end of some if these more complex trading ranges one can end up with a lot of trendlines that can make things a little confusing at times. With that said lets strip away all the noise and see what is actually there from a Chartology perspective.

The first daily chart for the GDX shows our first consolidation pattern that formed the bearish expanding rising wedge. As you can see it still stands out as a consolidation pattern with the breakout and completed backtest. The backtest came in exactly where it was supposed to. This consolidation pattern is still valid as nothing has been violated.

The second consolidation pattern we’ve been following is the H&S consolidation pattern that is still in play. It to had a nice backtest to the neckline and the 50 dma that stopped right where it should have. There is nothing broken on this chart either.

And the possible third consolidation pattern is our 6 point Diamond that encompasses both the bearish expanding rising wedge and the H&S consolidation pattern. This Diamond is very symmetrical in that the top and bottom rails are almost parallel as are the two side rails. You can see last Friday’s price almost got down to the bottom rail before it moved higher at the end of the day. It looks like the 25.50 area is going to be critical resistance as that’s where the 50 dma and the top rail of the diamond come into play.

We won’t know until the Diamond breaks out but from my perspective the Diamond is going to be our consolidation when all is said and done. As I have shown you many times in the past, bigger consolidation patterns are usually made up of smaller patterns and this Diamond pattern fits the bill.

If the Diamond turns out to be our consolidation pattern then it will most likely be a halfway pattern that forms in the middle of two impulse moves. One leading into the Diamond and the second one when the price action leaves the Diamond. What this also suggests is that when this next impulse leg down is finished that will mark THE bottom. A very important bottom. It doesn’t mean the big cap precious metals stocks will start screaming to the moon it just tells us the low is in. The most likely scenario is that some type of reversal pattern will form that no one knows how long it will take to complete. All we will know as that an important low will probably be established.

On the weekly chart below I show two different price objectives for the low. The first price objective is the measurement from the big massive H&S top that has nothing to do with the Diamond. I measure H&S patterns a little differently than what the books say is correct. I will measure from the top of the head to the right shoulder armpit. I then take that measurement and add it to where the price action breaks through the neckline to get my price objective, blue arrows on chart below. It basically measures each impulse leg.  In this case the neckline is horizontal so you would get the same measurement either way from the traditional method.

Now lets measure the red Diamond as a halfway pattern. As the big H&S top is the previous pattern I will measure from the breakout from the neckline to the first reversal point in a consolidation pattern, in this case reversal point #1 of the red Diamond. I then take that measurement and add it to the breakout point for the red Diamond to get our price objective. I call this the breakout to breakout method. There is another method I use which I call the impulse method but it’s not applicable to this situation. As you can see both price objectives, from two different measurements, are very close to each other, around 11 on the GDX. First though the red Diamond has to breakdown to get the ball rolling. Keep in mind if the Diamond turns out to be our consolidation pattern then we will experience an impulse move that is totally different than what we’ve been experiencing since April of this year. This is what you live for as a trader. Impulse moves are actually much easier because you have a trend established whereas in a consolidation pattern there is no trend to follow.

Next I would like to look at the SLV that is showing a similar Diamond to the GDX. As you can see it broke below the neckline last Friday and is now attempting to backtest it from below. There is a slight divergence with the spot price for silver as it’s still trading above the bottom rail of its Diamond. For the time being I’m gong to follow the SLV and see if the breakout holds. Notice how our Diamond has formed right below the big breakout gap from the 20 month rectangle. This is a perfect place for a consolidation pattern to form.

The weekly chart shows how our current red 6 point Diamond may play out as a halfway pattern to the downside. Note the position of the 4 point bullish rising flag that formed back in 2010 that led to SLV’s bull market top. The move leaving that bullish rising flag was almost identical to the move leading into the rising flag in time and price. This isn’t an exact science but it does give us a place to look for some kind of top or consolidation pattern to form. Also note that when the price objective for that red bullish rising flag was reached it also marked the end of the bull market in April of 2011. I think we could be setting up a similar situation if this next impulse leg down plays out as expected.

Now lets move on to gold and look at its Diamond consolidation pattern in more detail. Note at each top within the Diamond, even numbered reversal points, a small reversal pattern formed. You can see our current setup is very similar to reversal point #4.  From a purely Chartology perspective I could see a bounce off of the bottom blue rail of the Diamond that would cause a backtest to the neckline at 1300. Note the 150 dma that is working as overhead resistance now.

The weekly look at gold shows its diamond forming on the 2008 inverse H&S bottom neckline. It also looks like there is some reverse symmetry down, red Diamond,  that is matching the red bullish rising wedge on the left side of the chart going up.

There is a comparison chart I use that shows how the HUI and gold tend to form similar chart patterns. Note the two red patterns on the right side of the chart.

Lets take a quick look at the US dollar and see how the apex of the Diamond formation is functioning. So far it’s acting perfectly. You can see the initial hit and small decline which we were expecting. Then the big breakout move above the apex and then a backtest from the topside last Friday.

The US dollar waited till the last moment to save the bottom rail of the big base #2 that is so critical to the overall big picture. When it cracked that bottom rail for a week or so it put everything on hold. Now that the US dollar is trading back above that rail I can breathe a little bit easier now. Let me just say that if the US dollar finally takes out that multi year S&R rail that is going to be a big deal. I’ll leave it at that for now.

Lets now take a look at the euro that shows a classic throw over, above the top rail of its bearish rising wedge. As I have shown you before when you get these false breakouts and the price action immediately turns around and trades back inside the pattern it should actually embolden you to get in sync with the new trend as you know that was the last gasp of life to that trend.

What a difference a week or two can make to a chart. This daily chart for the euro now shows a possible 6 point bearish expanding rising wedge consolidation pattern. Does that name sound similar to you? It still has some work to do but with the way the US dollar is acting this consolidation pattern is very possible.

If the US dollar is putting in a big bottom then the euro should be doing just the opposite building out a large topping pattern. I tweaked the top blue rail just a tad when I seen that nice long bar, made from the previous week, where the price action closed toward the bottom of the bar. That top blue rail is now your line in the sand above is positive and below is negative. Right now it’s negative for the euro.

So we have a clear picture of what is transpiring in the precious metals complex right now. We still need conformation of the continuing downtrend once the bottom rails of the Diamonds all finally break down. I have been jumping the gun a bit by taking on some position before the breakouts but sometimes you have to be bold to make a good trade. Right or wrong I’m comfortable with our portfolios right now. I might not be by the end of the week but for the time being the charts are showing more bearish setups than bullish. We just need to confirm the continuing downtrend to get really excited about this 7 month consolidation zone being over and done with.  All the best…Rambus

Tonight I want to look at what I think has been an ongoing consolidation phase since April of this year. I mentioned numerous times, when we broke down form that massive H&S top on the HUI, that what we were experiencing was a rare move that doesn’t happen all that often in a trader’s career. To be able to catch the beginning of that huge impulse leg down and hold on through several smaller consolidation patterns took a lot of guts, but I knew the reward would be worth it in the end. The end came in August of this year when the HUI crossed above the 50 dma that had kept us in the trade the whole way down.

What you are experiencing now is the total opposite of an impulse move. The HUI has been correcting that huge move down, chopping in a 70 point trading  range from 210 to 280 with no visible trend. This is the job of a consolidation pattern, to work off the oversold readings to get ready for the next move lower. Sometimes this chopping action will carve out a reversal pattern and a new trend will emerge. Normally, 3/4th of the time, the trend will continue in the same direction leading into the congestion area when it leaves. The odds favor a continued move down once our consolidation pattern has finally finished its dirty work. So tonight lets look at some charts, for the precious metals complex, to see what is developing.

The first area I would like to look at is gold. During the bull market years the 150 dma gave the very best signal that a bottom was in, bar none. You could have thrown out every technical indicator, time cycles, Elliot Waves and yes even Chartology and you would have nailed every important bottom. The only time the 150 dma didn’t work was during the 2008 crash. Below is a daily chart starting from the 2008 crash low to the present. I have been watch this moving average with great interest wondering if it would do the same thing when gold turned down. We are now starting to get the answer. As you can see on the chart below gold is testing the 150 dma from below for the second time. Until it fails I will have to consider the 150 dma as our most important indicator for a top. I know it sounds too simple but sometimes simple is best.

This next chart for gold shows the 150 dma with one completed blue triangle that formed back in April and June of this year with a possible much bigger triangle that is still under construction. So far the 150 dma is holding resistance, top rail of the bigger blue triangle. There is another important feature on this daily chart that is talking to me. Normally, when you get a breakout from a consolidation pattern, think small blue triangle, the next consolidation pattern will form below the bottom of the consolidation pattern. Here you can see the possible bigger blue triangle is not doing this. It’s correcting in the same general area as the smaller blue triangle. This strongly suggests to me that both triangles are part of a bigger consolidation pattern that is still developing.

Before you look at the next chart see if you can figure out what type of consolidation pattern might be forming on gold?

Next lets look at a chart for silver. If gold is building out a 6 pt diamond consolidation pattern the odds favor that silver will have a similar looking pattern. I often wonder about that big long bar that was made back in May of this year and if it would have any relevance down the road. As you can see it fits the diamond consolidation pattern perfectly.

The next chart I would like to show you is a daily chart for SLV that shows the Diamond pattern forming just below an important support and resistance zone. Many times you will see something like this that forms just above, right on or just below and important S&R zone. In this case SLV is forming its diamond just below this important area.

If you were a subscriber back in 2012 I brought this 8 point blue diamond consolidation pattern to your attention:

(Editors Note:

This is a certified unchanged chart from January 3 2013…please Note the Price Objective on the Chart !!)

(Editor’s Note 2 : Here is the Story behind this chart Posted at the forum tonite

http://forum.rambus1.com/?p=32884

If you recall the breakout was one of those slow motion breakouts that took almost 8 weeks to do the backtest. This chart gave me the courage to stand my ground when the going got tough. As you can see once the backtest was finished the impulse leg down began that took  SLV below 18 before it bottomed.

Now lets put both of our Diamonds together on the weekly chart and see what the big picture looks like. If this diamond consolidation pattern plays out like I expect it will then it will be a halfway pattern to the downside. Note the red bullish rising flag that formed as a halfway pattern back in the parabolic blow off phase. I wish I would have had our website up and going back then as that red bullish rising flag measured out beautifully. That was then. Now we have a very similar setup with our current red 6 point diamond consolidation pattern that may play out as a halfway pattern to the downside. The move leading out our smaller red 6 point diamond should look similar to the move leading into our smaller 6 point diamond from the breakout of the bigger 8 point blue diamond. The setup is there. We just have to wait for confirmation and a break of the bottom red rail to get the ball rolling to the downside after a possible backtest.

This next chart is a comparison chart that shows you how the HUI, gold and silver tend to run together. One can be stronger than the others at times but as a rule you can see they generally move together which is important to know. So if gold and silver are showing a certain consolidation or topping pattern then the HUI is most likely forming a similar pattern. The annotations on the chart below shows them to be forming a H&S top pattern. I’m really just using the annotations to show you the similarities between the three patterns so don’t pay attention to the S’s, H’s and the NL’s. Think of the NL’s as  support and resistance rails, above is support and below in resistance.

Several weeks ago I showed you what I thought were diamond consolidation patterns that were forming on the precious metals stock indexes. At the time I was showing what looked like a 5 point diamond reversal pattern to the upside. On the chart below is an updated look at the HUI that shows the original 5 point diamond on the left side of the down slopping blue dashed line. As you can see that line was broken to the upside which in turn may now be showing us a 6 point diamond consolidation pattern instead of a reversal pattern. Remember the golden rule, an odd number of reversal points equals a reversal pattern and an even number of reversal points equals a consolidation pattern. Keep in mind this possible diamond pattern is still developing which could go on for several more weeks yet.

This next chart shows the XAU’s diamond pattern that is still labeled as a 5 point reversal pattern. The 6th reversal point is still in progress.

Below is the original chart for GDXJ that I’ve not tweaked yet. Note the breakout gap above the top right, down slopping rail that looked like a real breakout at the time. As you can see the price action has now drifted almost all the way back down to the bottom of the diamond.

Another important piece of the puzzle is the US dollar. Lets look at what the dollar has done this week since the Weekend Report. If you recall I was expecting some resistance at the apex of the Diamond around the 81 area. So far this is what we are getting. Even if the price action is going to break above the apex I would still expect an initial hit, a small move down and then another hit. So far the US dollar is behaving the way it should. The real question will be if it can actually break above the apex, because if it does that will be a monster clue that the dollar is getting stronger.

This is the way I see things right now in regards to the precious metals complex. We’re kinda of in no mans land right now waiting for confirmation from the many diamonds I’ve shown you. Keep in mind there are many individual precious metals stocks showing this same diamond pattern that started to form back in April of this year. There was no way to know back in April what kind of consolidation pattern might form. As you can see these consolidation patterns can go through many changes before the final pattern reveals itself. That’s what makes these areas so hard to trade. If you don’t catch the exact bottom and then sell at the top they can whipsaw you around before you know what hit you as we have seen. It’s getting late and I need to get this posted. Keep an open mind. If these possible Diamond patterns  play out we will then have another important impulse leg to trade that will make up for all the chopping action we’ve been in since April. All the best…Rambus

There were some interesting developments this week that I would like to focus on in the Weekend Report. The most important thing to happen was the rebound in the US dollar that was very impressive. Is the bottom in or is this just a short covering rally that will peter out when it’s finished? Oil continues to fall at a rapid rate which could be signaling another deflationary event maybe on the horizon. There are still a lot of crosscurrents out there but if we can get a good read on the US dollar and Oil that should help us understand what is likely to take place over the intermediate term.

I have a ton of US dollar charts I would like to show you so lets look at some of them and what they’re showing. First, lets start with the eleven point Diamond that broke down in September of this year and had several backtests to the underside of the bottom rail before it moved lower. The US dollar had a strong counter trend rally this week which is now trading right back up to the backtest area at the apex of the Diamond. This is a critical area where the confluence of the support and resistance rails are focused like a laser beam at one point, the apex. If the US dollar can trade above this critically important area that would be one for the dollar bulls.

This next chart shows when the US dollar put in its top at reversal point #9 gold was putting in a nice bottom that led to a 250 dollar rally that shows the inverse relationship is still working. As you can see last weeks rally in the US dollar put gold on the defensive.

This next chart is a longer term look that shows the Diamond and our rally from  last week as a backtest so far. The red and green circles shows where the 50 dma and the 200 dma have crossed over giving buy and sell signals. As you can see the dollar is still on a bearish crossover at the moment.

Next lets look at the old original expanding triangle which led to the Diamond pattern. As you can see the bottom rail is still HOT after all this time as this is where the dollar is getting its bounce. This recent low at reversal point #10 completed the ninth reversal point which is telling us it’s a reversal pattern to the downside. In order to get the 10th reversal point completed the dollar would have to rally all the way up to the top rail to compete the 10th reversal point putting the expanding triangle back into a consolidation pattern to the upside if it breaks through the top rail. Expanding triangles like this tells you the volatility is getting to extreme levels as each swing is getting bigger and bigger suggesting the dollar is getting out of control. Right now the dollar is testing the brown shaded support and resistance zone from below which is its first real obstacle to moving higher.

I have to give this next chart to the bulls as they have managed to trade above the support and resistance rail that I have to label as a false breakout for the time being. If the dollar bulls can get the price action above the brown shaded support and resistance zone, directly overhead, that would be another positive development for the bulls.

The reason the dollar chart above is so important, especially with the support and resistance rail, is because of what the implications are if the S&R rail can hold support. I’ve shown you this next chart many times in the past that shows the big picture for the dollar. Notice the thin black dashed line on the far right side of the chart that is the support and resistance line from the chart above. If this critically important line holds it will put the bigger picture of a strong US dollar back into play. The dollar would need to take out the thicker S&R rail to really create a strong move to the upside. So far the thick down sloping S&R rail has held resistance on several attempts by the dollar to breakout.

This next long term monthly chart shows the US dollar breaking below a 2 plus year uptrend, black dashed line, that has formed within the completed downtrend channel at reversal point #5. Is this just a backtest move to the thin dashed line or something bigger?

Lets look at weekly chart for the US dollar that shows a bearish rising wedge that has broken down. A complete backtest would come in around the 82 area.

Lets look at one last chart for the US dollar that shows the very long term look that shows a potential very large H&S top pattern. I really don’t expect this chart to play out but in a worst case scenario, if inflation was ever to go hyper, then this chart would probably play out and gold would go to the moon. You can see why our latest support and resistance rail, that had the false breakout to the downside and has reverse back up above that important rail, is so critical to the big picture. We are at junction city USA.

So far what the US dollar charts are showing us is that it’s time for the bulls to step up to the plate and break through all the overhead resistance rails to turn the dollar back up into an uptrend. The ball is in their court right now.

Now lets look at the most important commodity on the planet which of course is Oil. We shorted oil when it broke down from the support and resistance rail as that showed me a creditable top was in place. So far the price action is moving down in reverse symmetry to how it went up this past summer on the daily line chart.

Lets look at the same top using a bar chart that shows us Oil created a red  bearish falling wedge that is approaching a short term price objective down to the 92.71 area. This would be a good place if one wanted to take some profits.

Before we move on I want to show you how the false breakout, that I attributed to the Syrian crises, looked like the real thing at the time as the price action broke above the 2 1/2 year top rail of the blue triangle. Everybody and their brother saw that breakout but when I looked at it from a different perspective I seen something totally different. First the blue triangle with the false breakout.

Below is the weekly chart I showed you where I used horizontal trendlines for the top and bottom of the big trading range. Doing this gave me a much clearer picture of what was really taking place. Many times horizontal support and resistance zones gives one a clearer picture even though the tops and bottoms are not specific points but more of a zone, thus the brown shaded support and resistance zones I often show. As you can see Oil is now working on a possible 5th reversal point in a rectangle which would put this rectangle into a reversal pattern if the price action eventually breaks through the bottom brown shaded support and resistance zone.

This is what the rectangle would look like on a very long term chart of oil. If this rectangle turns out to be a 5 point reversal pattern and breaks out to the downside I think the deflationary scenario I’ve been looking for would come to fruition.

I want to show you one more long term look at oil, that I’ve been showing for a long time now, that has yet to materialize but with the recent weakness its starting to get interesting again. This chart shows a massive H&S top pattern that has teased me several times in the past when it would approach the neckline. Note how many times this neckline has been tested over the last 5 years or so. I look at this very long neckline as the line in the sand between deflation or inflation. If the neckline can hold then the inflation scenario will have merit and the inflationists will have a shot at being correct. On the other hand if the neckline gives way to the downside then the deflationary hole will open up like a black hole that will suck in everything that isn’t nailed down.

The GASO chart shows it’s approaching the bottom rail of a 5 point rectangle.

Lets turn attention to the old CRB commodities index that shows us, after trading sideways since July of 2012, it’s now starting to show some weakness as it’s getting close to making a new lower low.

The GNX commodities index.

JJA agricultural index.

You can use your imagination on what this next chart tells you about the battle between inflation or deflation.

The battle still rages on between the inflation camp and the deflation camp. This has been going on ever since the bull market started for the precious metals complex. If we’re going to see deflation come to the forefront then the US dollar bulls will need to step up to the plate and rally the dollar above some of those close by resistance rails just overhead. Buy the looks of most of the charts above deflation still seems to be in the big picture going forward. How long it takes to really get the ball rolling is anyone’s guess but we seem to inching closer to the inevitable tipping point. How the precious metals complex does is still unclear yet as that sector is still in a trading range which could breakout either topside or through the bottom. I suspect the PM sector will initially fall in the first round of deflation but then turnaround before everything else like it did in 2008. The US dollar will be our biggest clue going forward so that’s where I’ll be keeping a close eye. All the best…Rambus

Below is a weekly look at the HUI that shows a possible rectangle forming. As you can see we are getting a bounce off of reversal point #3 that could be the start of the move up to the top of the trading range. The price action could also come back down to test the bottom rail one more time to form a small double bottom at reversal point #3 before it rallies up. Note the thin blue dashed rail that runs through the center of the rectangle. Most rectangles have these halfway lines in them that divide the upper and lower half’s. You can see the low that formed in April starts the center dashed rail. Our current rally has stalled out at the center rail. This is just more confirmation that we are still trading in a congestion zone either be it a consolidation pattern or a bottom pattern. The plan will be to trade the bottom of the rectangle and sell the top until prove otherwise.

Many times, just before a big move is to occur, you will get a false breakout that can whipsaw you before you know what hit you. It gets everyone moving one way and then out of know where the price reverses direction leaving everyone shaking their heads and afraid to make a move. As you were just whipsawed your thinking is, I’m going to wait until I see a better setup. Does this sound familiar to you. The problem is the real trend is just starting and you are sitting on the sidelines waiting for a new entry point that gets higher and higher. Whipsaws are just part of the game we play and can be painful if not understood. One year ago we got a good whipsaw on the HUI when it broke back above the smaller H&S top, neckline #1, that looked like a real move to the upside when it happened. I got sucked into that one just like everyone else at the time because there was a nice double bottom that had formed that created the right side of the much bigger H&S top, neckline #2. The brown shaded area, just above the smaller neckline #1, turned out to be a bull trap just as the big downtrend was beginning. It trapped many bulls that held on far longer than they should have. You talk about a head fake. Luckily I was able to reverse our long position when the smaller neckline #1 was broken to the downside, breaking even for the trade. That’s when we got short and rode the new downtrend all the way down into the August time frame when the HUI finally crossed above the 50 dma. You can see a couple of small backtests to neckline #1, last two red arrows on the right side of the chart, that gave us all the clues we needed to be short the precious metals stocks. Now look down to the bottom right hand side of the chart that shows the exact same brown shaded area that I’m calling a bear trap. Again, we were short when the blue bearish expanding rising wedge was broken to the downside. When the price action couldn’t move lower than the June bottom a red flag came up for me. As you know I abruptly reversed course again on October 18th and went long. I know many of you were thinking what is he doing? How could he be a bear one day and a bull the next? After being whipped sawed as many times as I have been you begin to understand what is happening and you actually become more embolden once you figured it out. That is why I wasted little time going from being short to being long. If I’m correct on this one we’ll have bought very close to the actual bottom which is looking more like a double bottom now. We still need to trade above 280 or so to confirm the new uptrend but we have excellent positioning right now with our NUGT 3 X long the precious metals stocks etf.

The next chart is a comparison chart that shows the HUI on top gold in the middle and silver on the bottom. If you recall I was looking at the many H&S consolidation patterns that were forming on the precious metals stocks and the PM stock indexes. As you will see the HUI and gold have now broken back above their respective necklines negating their H&S consolidation patterns. Silver is still trading below it’s neckline but it’s steeper than the HUI and golds. The blue shaded area shows the bear trap that many don’t believe is happening. There is an important clue but a very subtle one on the HUI. Follow the price action when the neckline was broken to the downside, which is the bear trap. Notice how the HUI gapped above the neckline and then the very next day backtested it from above. As you can see gold had a similar breakout and backtest form the top side of it’s neckline. This explains why I reversed course when I did. So far it has worked out beautifully.

Next I would like to show you a 60 minute chart that shows more detail of the reversal, off our current low, that has taken place on the HUI. There is a really big clue that stands out like a sore thumb. Note the big breakout gap that occurred at the bottom rail of the blue expanding rising wedge – neckline and the top black rail of the bullish falling wedge, on the far right hand side of the chart. That big gap is one way to get over resistance. Also note the backtest to the blue rail that told me that rail was hot even though it had failed to hold resistance on our current rally. Whenever you see a gap that trades above an important support or resistance rail listen very carefully to what the market is telling you. Its talking to you but you have to understand the language and with enough time and experience you will be able to interpret what she is saying.

There was another very important clue that caught my attention this past week. The chart below shows the downtrend channel, that began with the bull trap I showed you on the first chart above, that is the top of the right shoulder of the big H&S top pattern. This chart shows you all the small consolidation patterns that we watched form in our long ride down from the red arrow, red vertical line, to where the HUI gapped above the 50 dma in August. That is where we exited our short positions on DUST, DGLD and DSLV. The green arrow, green vertical dashed line, shows where we have gone long starting on October 18th. I think this would qualify as selling or shorting the top and buying the bottom, at least up to this point in time.  I would like to focus your attention on the red circle that shows how the HUI interacted with the confluences of resistance rails. You have to look real close, inside the red circle, that shows a big gap right where the green arrow is pointing up. That gap took out the big one plus year top rail of the downtrend channel, the bottom blue rail of the expanding rising wedge, the black dashed support and resistance rail and the 50 dma all at one time. That was a very important development IMHO.

Next I would like to look at some inverse etf’s for gold, precious metals stocks and silver. I’m actually getting a pretty clear reading on these short 3 X etf’s that are painting a very positive picture for the precious metals complex. Remember they are inverse etf’s that shows if DGLD is building a H&S top then gold is showing a H&S bottom. The first chart we’ll look at is DGLD 3 X short gold that has a very nice looking H&S top in place. As you can see it’s made up of three different chart patterns. The price action broke below the blue bearish rising wedge, about 8 days ago, with a quick backtest that told me to expect a move down to the neckline at the very least. This is good for our UGLD trade which is 3 X long gold.

Below is a line chart for the DGLD short gold etf that shows a nice symmetrical H&S top that is trading below the 50 dma.

Next lets look at DSLV which is a 3 X short silver etf that is showing a very bearish picture for that etf but a very positive picture for your USLV 3 X long silver etf. DSLV is hanging on by a fingernail to the black dashed uptrend rail. Note it has already broken out from the blue bearish rising wedge halfway pattern. These types of patterns generally form about halfway through the impulse leg down. By the looks of this chart the next 4 to 6 weeks should be very bad if you are short silver but very good if you’re long silver.

Below is a close up view of DSLV’s bearish rising wedge complete with a breakout gap and backtest last Friday. This is the reason silver was weaker last Friday compared to gold and the HUI as it was in backtest mode, not quite ready to start its impulse leg.

Now lets look at everybody’s favorite 3 X short etf, DUST. The 60 minute chart shows the blue bearish rising wedge that we were watching very close that had a false breakout to the upside if you recall. It is now part of a much bigger chart pattern the bearish rising flag. Notice the big break away gap from the blue bearish rising wedge. If you recall that is where we exited our DUST position at the time. I said when you see a big gap like that, don’t ask questions, just get out of your position as quickly as possible because there is a good possibility that a big move is about to begin. That is another clue as to why I made such an abrupt turn around from being short the PM complex to going long. Gotta listen to the clues. As you can see DUST has already broken out of the bear flag and did a backtest last Friday.

This next chart of DUST puts our bear flag into perspective as a halfway pattern within a bigger downtrend channel. The red numbers shows the nice clean reversal points in the blue bear flag.

The daily chart for DUST shows a rather ugly H&S top formation with a strong backtest. As you can see the price action from the last two days has traded below the bottom blue rail of the blue bearish rising wedge so we are actually 2 days into the breakout.

This last chart shows how I’m measuring the blue bear flag as a halfway pattern. Each rectangle measures time and price. Notice how the price objective is all the way down to the October low from last year that should come in around the 11.35 area around the 12th of December. This chart is a template for us to watch to see how things progress. As long as nothing gets broken and the price action continues to fall we’ll just bid our time waiting for the price objective down to the 11.35 area to be hit. There are no guarantees that this will unfold exactly how I have it laid out but this is the best scenario I see from a Chartology perspective.

Keep in mind these three etf’s are short the precious metals complex. The reason I’m showing you these short etf’s is because they have a clearer picture and are easier to see their tops which would be bottoms on our long precious metals stocks, NUGT, UGLD and USLV. By the looks of these chart above we are on the cusp of something interesting that is about to happen in the precious metals sector. Stay tuned for further developments. All the best…Rambus