I hope everyone is enjoying the volatility because that is the name of the game we are playing. There is no such thing as a safe investing environment. As with nature you always have two opposing forces, the ying and the yang, the good and the bad, the democrats and republicans and the bulls and the bears. This creates tension between the two sides which leads to movement in one direction or the other. Nature demands change because without it everything would become stagnant and die. Just when you think you have the markets figured out something will change and leave you wondering why this is happening when that should be happening. I’ve stated several times in the past, “the only rule in the market is there are no rules.” This means markets are always changing and what may have worked before may not work this time. So we are always trying to hit a moving target with our Chartology, Elliot Wave or time cycles, whichever method you use, to gain an edge. This is just the nature of the beast pure and simple. If it was easy there would be no markets to trade because everyone would be right and nobody would be wrong. Like I said you have to have the ying and the yang, the good and the bad, the democrats and republicans and the bulls and the bears.

Tonight I want to show you some weekly line charts for some of the big cap precious metals stocks but before we do I would like to update you on a couple charts first. Below is a daily bar chart for gold that shows the double H&S top with the lower neckline coming in right at 1300. Even though there was a small false breakout the pattern still remains intact. We’re close but just not quite there yet.

(Editor’s Note : This Post was made Wednesday Night….. As You probably Know…as of Friday…we are Now “There” )

This next chart is what I call my bull and bear chart. The bulls are looking at this chart and are seeing an inverse H&S bottom that is going to lead to a brand new bull market. The bears look this same chart and see a bearish H&S top. One side is going to be right and the other side is going to be wrong. We’ve placed our bets and now we wait for confirmation.

This next chart is a combo chart that I’ve been showing that shows gold breaking down from its small red bear flag five weeks ago already and the HUI has been in breakout mode for the last two weeks. Let me repeat this again. Gold has broken down out of its bear flag five weeks ago and the HUI two weeks ago. Folks we are and have been in an impulse leg lower. What you are experiencing right now is just normal market movement, nothing more or nothing less. In the case of the bear, the markets go down more than they go up but there is always the steady chopping action that frustrates both the bulls and the bears alike. It’s the trend of lower lows and lower highs that you have to observe, over time, to see who is in control. Note the heavy purple dashed line that shows the bull market tops in gold and the HUI. Look at the price action on the left side of the purple dashed line and you see higher highs and higher lows all the way up. Now look to the right side of the purple dashed line and you see just the opposite, lower highs and lower lows which is a downtrend. This is basic Chartology 101.

The two hour line chart for the GDM shows the breakout and backtest, that we observed in real time, when it happened. I don’t know how to make it any planer that the precious metals stocks have been in an impulse move lower since the breakout from the bottom blue rail of the bearish expanding rising wedge. There is nothing weird or strange about this downtrend. It actually looks pretty normal. Two steps down and one step up, backing and filling which is creating lower lows and lower highs. This is a downtrend you are experiencing.

This next long term daily chart for the HUI puts our bearish expanding rising wedge into perspective within the confines of the downtrend channel that started one year ago already. As you can see its been a steady grind lower until the blue bearish expanding rising wedge developed. The market need a timeout and this is the consolidation pattern it chose to form. Note the breakout and backtest when the HUI broke through the bottom blue rail of the expanding rising wedge. It just doesn’t get any pretty than this. As long as the price action stays below the bottom blue rail of the bearish expanding rising wedge we have to play the odds that the move lower will continue.

Earlier in this post I showed you my bull and bear chart and said I believe the bears were going to win the battle. These weekly line charts shows why I still remain bearish and why the bulls will have to start proving their theory before the precious metals stocks go much lower. As sir Plunger so aptly put it, the point of recognition is close at hand for the third phase of this bear market. I believe when the bulls can no longer make a case for their inverse H&S bottom they will start to capitulate and run for the hills. That has yet to happen but it’s getting closer by the day.

The first weekly line chart I would like to show you is the XAU that is just a simple chart that says alot. Sometimes you don’t need alot of lines on a chart to make your point. You can see the two H&S top patterns that most missed that stand out like a sore thumb now that they can be seen in hindsight. I believe the point of recognition for the bulls will be when the previous low is broken to the downside.

ABX is currently trading below the 2008 bottom.

AEM is currently trading at multi year lows on the weekly line chart.

ASA is showing some nice reverse symmetry down but is still trading several points above its 2008 low.

AU has been trading below its 2008 low for sometime now. Note the breakout and backtest to the 2008 trendline.

BVN is just a point or so away from its 2008 low.

CDE shows a beautiful H&S top that just completed the backtest and now has plenty of room to run to the downside.

GFI is trading at multi year lows and is approaching the 2008 bottom.

GG still has a lot of room to move lower.

Randgold just completed a backtest to its double top trendline and has a lot of room to move lower now.

HMY is trading way below the 2008 bottom is now approaching new all time lows.

One last chart and then I need to get this posted. NEM is now trading at multi year lows. There are still two days left of trading for this week but if NEM closes below the previous low that will not be a good omen if your a bull.

All these charts above shows you why I’m still bearish on the PM sector and until something changes these charts for the better it is what it is regardless of what the fundamentals may say. There are going to be good days and bad days coming up. The volatility will probability increase as we move lower with the bottom pickers looking for a bottom and the lonely bulls selling at all cost to save whatever capital they can. Stay calm and strong. All the best…Rambus

In this Weekend Report I want to continue looking at the precious metals stock indexes and the consolidation patterns that have been building out since the June low. The reason I’m spending so much time looking at this possible consolidation area is so you can get a feel, in real time, how breakouts and backtest work. There is no better way to learn how the markets work than to watch how things unfold moment by moment. Its easy to say after the fact, yes I should have done this or that, but real time doesn’t give you the luxury of 20/20 hindsight.

I’m going to start with the 2 hour, 6 month line charts that I showed you a couple of weeks ago before the flash rally. They looked like they were on the verge of breaking down at the time. I think the flash rally just delayed the inevitable. It may not feel like it but a lot of work has been going behind the scene with the breakout and backtesting that takes time to complete. As you will see everything up to this point is still working out as planned except for the flash rally. Keep in mind when I posted these chart we were still trading inside the bearish expanding rising wedges.

Lets start with the strongest of the precious metals stock indexes the HUI that now shows the breakout and a half hearted backtest so far. You can also see the H&S consolidation pattern that is part of the bearish expanding rising wedge consolidation pattern that shows up on the other PM stock indexes as well.

The XAU shows it a little further along in it’s move lower.

The GDX shows a nice breakout and backtest.

GDM is a proxy of our DUST trade which is trading lower which is good for DUST.

The GDXJ, small caps, shows the same setup as the other PM indexes.

The GLDX small cap gold mining stock index is the furthest along in its impulse leg lower. Note, that one backtest after the breakout. That is something we have to keep an eye on with the big cap PM stock indexes. You never know for sure from what level a backtest could spring up from so this chart is a heads up just in case the big cap PM stock indexes have something up their sleeve. This chart also paints a bigger bear case as the little guys are leading the way down. You want to see just the opposite happen in a bull move.

The 2 hour line chart for gold shows a H&S pattern that broke down and is now in a strong backtest. We need to see the price action break back below the neckline again to confirm the H&S pattern.

SLV is showing a small unbalanced H&S consolidation pattern that has broken down below the neckline with 2 backtests. It has also broken down from the much bigger support and resistance rail and is backtesting it from below. Above the S&R rail is positive and below is negative.

Next lets look at the internal structure of the blue bearish expanding rising wedge as seen on the 60 minute chart for the HUI. It wasn’t until the small double top was in place that the expanding rising wedge could even be seen as a possibility. Once I recognized the double top I was then able to draw in the top blue rail which so far has turned out to be the major resistance point for the HUI. As you can see there is a smaller H&S pattern with the double top as the head and the red bearish falling wedge as the right shoulder. Note the big breakout gap that took out the neckline and the bottom rail of the red falling wedge. That’s what you like to see happen in a situation like that. There is also a much bigger H&S pattern in play at this time with the left shoulder forming back in July. The last point of interest is the red bearish falling wedge that is forming basically right on the bottom blue rail of the expanding rising wedge and the H&S neckline. Note the beakout gap and the backtest last week to the underside of the neckline and the bottom blue rail that ended up being the 4th reversal point in the red falling wedge.

As you can see the GDM chart has a similar look to the rest of the PM stock indexes as they all look pretty much the same.

The GDXJ shows a double H&S top that is showing the way lower for the bigger caps.

Lets put our blue bearish expanding rising wedge into perspective which shows it as the last consolidation pattern in a string of consolidation patterns that have made up this downtrend that started at the right shoulder high made last year around this time. You can see a breakout gap accompanied by the backtest last week which shows the work that was being done to get ready for the next impulse leg lower. Everything is in place. Now we just need to see some follow through to the downside to really get the ball rolling. Also note that our bearish expanding rising wedge is by far the biggest chart pattern of this downtrend. This tells me it could very well be a halfway pattern. We’ll just have to follow the price action and see where it leads us.

This next chart starts putting all the pieces of the puzzle together up to this point in time. The top and bottom rails of the expanding downtrend channel each have three touches which makes this viable pattern. Normally in a downtrend you will have a hard move down followed by a sideways consolidation pattern that can chop sideways until it hits the upper trendline. It can do this several times before the downtrend is finished. The blue numbers shows this happening on the chart below. Point #1 started the downtrend with points #2 and #3 being the sideways consolidation pattern trading between the bottom and top rails. Now fast forward down to reversal point #4 which is the beginning of our blue bearish expanding falling wedge that has now trade between the bottom and top rails. I don’t know if the price action will trade back down to the bottom trendline but it’s setup to do so. If it did the decline would probably look similar to the decline between reversal points #3 and #4. Again we will just have to watch the price action for clues along the way.

Using the linear scale chart we get a more parallel down trend channel.

I would like to go back in time and show many of our newer subscribers what we were looking at back in the beginning of 2012. The first thing you will notice is the black dashed down sloping trendline that I labeled as a support and resistance rail. The red arrows shows how it acted as resistance and the green arrows shows how it acted as support. That was a very important trendline at the time which let us know where we stood as far a being in the bull or bear camp. You can see the H&S top that has all the green arrows underneath it as it was acting as support. That was a very nice looking H&S top that I thought was going to be our major top at the time. As you can see the price action broke below the neckline that said all systems go for a move lower. The backtest started off of the solid black uptrend rail that took the HUI back up to the neckline, red arrow. So far everything was working out beautifully. I drew in the solid black uptrend rail connecting the 2008 low and the low we just made. When the HUI started to move lower after backtesting the neckline from below I really thought the price action would break through the solid black uptrend rail with no problem as the H&S top was in place. As you can see when the HUI declined back down to the black rail it didn’t give way and the HUI started to rally creating the double bottom. This was a very trickery situation as we had the H&S top in place and a double bottom that had just held. We were short at the time and I had to decide very quickly if that was the correct position to be in as the double bottom held and the HUI was rallying strongly up. Long story short we exited our short position and went long. Once above the neckline, red arrow, it felt like the bull market was taking off again and the place to be was to the long side. This is why following the price action is so important. The rally stalled out at the blue arrow, which we now see as the right shoulder of a bigger H&S topping pattern. I held my ground on the backtest from the top side just as you would have expected to happen as the support and resistance rail suggested should now hold as support, green arrows. The moment of truth came when the HUI broke below the black dashed support and resistance rail with a strong move. I said at the time this wasn’t supposed to happen if the bullish case was in place. We exited our short position with a small loss to break even. At that point we backtested the black support and resistance rail from below and is when we took our initial position in DUST on December 2nd I believe. I used the red circle to show how we were interacting with the neckline, which is part of the support and resistance rail and the solid black uptrend rail. The Chartology worked its magic within the red circle as you can see. The price action backtested the neckline and then when the uptrend rail was broken to the downside it backtested it as well. This was as clear a signal as you could get that the false breakout above the neckline or the support and resistance rail was nothing more than a bull trap that caught many bulls by surprise including me. I was lucky enough to have Chartology on my side so by following the price action we were able to get out of our precious metals stocks and ride the whole bear market impulse leg down using DUST, DSLV and DGLD.

Now you can see our blue bearish expanding rising wedge that nobody is seeing except members of Rambus Chartology. There is a very good possibility that this pattern is showing us the halfway point of the major decline that started at the top of the right shoulder on the bigger H&S top that I’ll show you in a minute.

The chart below shows the small H&S top on the chart above but also shows the much bigger H&S top that formed when the rally stalled out above the smaller H&S neckline that I’ve labeled as a bull trap.

Below is a daily log scale line chart that shows the double H&S top in place with our blue bearish expanding rising wedge as a possible halfway pattern. Keep in mind the linear scale chart gives a lower price target for the big H&S top.

I need to warp this up as it’s getting late. So far nothing is broken and the price action is moving along as expected. There are times when the markets whipsaw you before you know what hit you. By following the price action we can generally stay on the right side of the bigger move. The markets are always trying to shake you off before your price objectives are hit, it’s just the nature of the beast.  We’ll see if we get any follow through to the downside this week that will leave our bearish expanding rising wedge in the DUST. All the best…Rambus

I just want to show you why we are much more leveraged to DUST or short the precious metals stocks vs just being short gold and silver. Below is a combo chart with the HUI to gold ratio on top and gold on the bottom. This is really a pretty incredible chart when you see how badly the precious metals stocks have preformed to gold. The ratio chart also has some pretty nice symmetry going on. I’ve been looking for the .13 area for a long time that will match the start of the bull market low made back in 2001.

The next chart for the HUI to GLD ratio shows how it has broken below the 2008 crash low and has been consolidating just below that important bottom since July of this year.

This next chart compares the HUI to silver that shows how badly the precious metals stocks did when silver was making its all time highs back in April of 2011. Notice the almost vertical drop the ratio made into the April 2011 bottom. That shows you how badly the PM stocks did as silver was going parabolic. I remember thinking to myself, something isn’t right with this picture, at the time. Note the big H&S consolidation pattern that formed in the middle of the chart that broke down last fall. In July of this year the ratio broke down again this time breaking below the red bear flag.

I want to show you one more ratio chart that compares gold to the XAU that tells an incredible story. First note the spike high that was made during the 2008 crash where the ratio went to a new all time high. Everyone said that was a fluke and it was truly an aberration that will never happen again. The ratio fell for the next year or so and then began the long risie back up again. Note the 5 point blue triangle that reversed the downtrend. As you can see two more consolidation patterns formed on the way up that kept suggesting that the precious metals stocks were still underperforming  the metal. Then the ratio hit another all time high this summer that looked like it would be the ultimate high for the bear market for the precious metals stocks vs gold. Note the little island reversal that formed just under the black dashed trendline just below the all time high. I thought at the time that the ratio was finally breaking down and it was time for the precious metals stocks to start outperforming gold again. That’s when we took a stab at the precious metals stocks that lasted all of a week or two before we had to exit at breakeven. As I mentioned several times and to Sir Fully this week, ” the only rule in the markets is are there are no rules.” This means stocks can get overbought or oversold beyond anything reasonable and for an extended amount of time. I can guarantee you that if you said, at the beginning of the bull market for the precious metals stocks that they would under perform gold to this extent, they would have put you in a mental institution.

As long as these ratio chart continue to fall we will be more leveraged to the precious metals stocks using DUST as our main tool. It’s possible that when THE BOTTOM finally comes in the precious metals stocks will lead the way higher as they did back in 2001. Right now they are still under performing the metals.

In this Weekend Report I would like to look at the Chartology of the precious metals complex as this is either a consolation phase or as some think a bottoming formation is building out that will lead to the next bull market. In order to grasp what is really going on we need to look at all the possibilities and try to gain some perspective on which course of action the precious metals complex is likely to move in the short to intermediate time frame up or down.

The first chart I would like to show you is what I call my bull or bear chart. Many chartists are looking at the inverse H&S bottom that actually started to form back in April of this year, left shoulder. The head was formed during the late June low followed by the ten week rally to the September high around the 1435 area. As you can see there are two black necklines labeled #1 and #2 that shows a possible double inverse H&S bottom. In order to keep the symmetry alive gold would need to decline down toward the 1250 area where it could then form the second right shoulder. To confirm an inverse H&S bottom is in place gold would have to takeout the bigger neckline #2  around the 1400. This would be the bullish case for gold. The bearish argument for gold is that it is forming a H&S consolidation pattern as shown by the blue annotations. The flash rally that took everyone by surprise made the right shoulder high which quickly reversed direction. So at this point we have two inconclusive patterns to work with.

As I will show you in the following charts I believe the blue H&S consolidation pattern will be the correct pattern to follow. If gold rallied up through the bigger neckline #2 then I will have to reassess the situation. The 60 minute chart for GLD shows all the chart patterns that have developed since the late June low. The first chart pattern to note is the black bearish rising wedge that had built a smaller red bullish expanding falling wedge as a halfway pattern which created the left shoulder. The breakout from the red expanding falling wedge led to the high for this move which is the head portions of the double H&S top. Note the small H&S top that reversed that 10 week rally labeled neckline #1. Once the smaller neckline #1 was broken to the downside that led to the bottom of the bigger H&S neckline #2 where we got the flash rally that formed the right shoulder. Note the neckline symmetry rail that was made off of the smaller neckline #1 that gave us a good place to possibly look for a bounce for a bigger H&S top which turned out to be the case with the placement of neckline #2. A neckline symmetry rail is just a parallel trendline made off the original neckline. It doesn’t work all the time but it does give you a rough place to look for a second neckline which happens quite a bit.

Let look at a daily chart for gold that puts the 60 minute H&S consolidation pattern into perspective. As you can see the price action is trading right in the middle of both necklines in no man’s land.

This next chart shows the big 20 month rectangle that gold broke out from back in April of this year. That was a major nail in the coffin for the bull case as gold should have never broken that critical bottom rail of the 20 month rectangle. That confirmed the bear market for me.

Lets look at one more chart for gold that shows a very long term monthly view going back 20 years. This chart makes it painfully clear if you’re bullish on gold that there is a lot of work to do to repair all the damage that has been done since the unbalance double top was put in. First note the 10 month ema that held support for most of gold’s bull market years and was rising. Since the unbalanced double top was put in note how it’s now acting as resistance on any rally and is falling. The brown shade support and resistance zones I have added that shows the previous tops that were made on the way up should now act as initial support on the way down. If gold takes out the 3rd brown shaded support and resistance zone there will be little in the way of support until it trades down to the 4th support and resistance zone around the 1000 area. I often write about reverse symmetry which means how a stock goes up, especially in a strong move, will reverse that move in similar fashion on the way down. As you can see that is exactly what gold is doing.

Lets now focus our attention to silver by looking at the 60 minute chart that shows it too has a small H&S top  in place with a possible bigger H&S pattern developing right now. There have been two backtests to the smaller neckline around the 22.25 area. Note the flash rally that took the price up to the smaller neckline and has created the right shoulder of the bigger H&S pattern. As you can see the bigger H&S pattern is strongly slanted but the neckline symmetry rail suggested that the right shoulder high would come in around the smaller H&S neckline. The price action has been crawling along the bottom neckline for a week or so which if it’s broken to the downside the bigger H&S pattern would have a price objective down to the previous low at 17.82.

The daily look at silver shows how the flash rally ran into resistance at the neckline.

The weekly chart for silver shows its big 20 month rectangle that broke down in April of this year right at the same time gold broke below its own bottom rail. The blue arrows shows why the bottom blue rail of the rectangle is such a critical resistance zone. It’s a 38% retrace of the last reversal point in the big rectangle at reversal point #6. The brown shaded area shows how silver came close to actually backtesting the bottom rail of the 20 month rectangle. Again that bottom rail is critical resistance so if silver can ever overcome that blue rail that would be a big deal for the bulls but until they can over come that all important trendline defensive action is the best policy.

This next chart for silver shows a possible consolidation area that maybe forming at this time. It’s too early to tell yet buy it makes sense from a Chartology perspective. As you can see silver had a big decline starting at the 6th reversal point in the blue rectangle at the 35.50 area all the way down to the 17.80 June low. That was a very big decline and now it needs time to consolidate that move  regardless if silver is still going to move lower.  Right now silver is trading right in the center of a possible consolidation pattern as shown by the thin red dashed center rail.

Lets look at a weekly chart for SLV that shows a slightly different consolidation  pattern vs the 20 month rectangle. Here you can see a blue bearish falling wedge that has four reversal points with a big breakout gap and a completed backtest to the bottom blue rail. Again, you can see how SLV can trade sideways for many months before a definitive breakout would occur. These types of trading ranges can offer up some good profit potential if one can identify them early enough.

I would like to finish up this Weekend Report by looking at some of the precious metals stock indexes that are showing two different patterns at the moment. LIke I showed you on the short term charts for gold and silver they both have formed H&S consolidation patterns. The first pattern I would like to show you on the HUI is its own possible H&S consolidation pattern. Here you can see the flash rally formed the right shoulder and the HUI is now testing the possible neckline. Just think of the neckline for the HUI as positive above and below negative. Of the four precious metals stock indexes I follow the HUI is showing the most strength as the other ones have already broken down.

The 2 hour line chart shows the other chart pattern the PM stock indexes are all making is a bearish expanding rising wedge with the H&S pattern as part of the bigger pattern. As you can see the bottom rail is very hot as its been tested many times. We will know soon enough who is in control the bulls or the bears by what happens around this very important trendline.

As I stated early the HUI has been the strongest PM index as it’s still trading above the bottom rail. Lets look at a few more PM indexes that are showing weakness and are trading below that all important rail. First lets look at the GDX that shows it already breaking below the bottom rail complete with a backtest. The bottom blue rail is now your line in the sand.

The 2 hour line chart for the XAU shows a breakout and backtest.

Even though there wasn’t a lot of movement this week in the precious metals stock indexes there was some very important changes being made namely the breakout and backtest of the bottom blue rails of the bearish expanding rising wedges. So far this is how we want to see the breakout occur. The important thing to keep in mind is that we don’t want to see the price action trading back above the bottom blue rail if one is short. If one is bullish that is what one wants to see. The main thing is we have a line in the sand in which to operate.

The GDXJ is showing a double H&S top in place with the all important backtest taking place right now.

The long term daily chart for GDM shows how this potential topping area started out as a small double top which is the head portion of the H&S consolidation pattern. The brown shaded area shows why the double top head formed where it did as it was previous resistance.

I want to leave you with one last long term chart for the HUI that shows the massive H&S top we’ve been following and our current blue expanding rising wedge pattern in linear scale. We have two price objectives as shown on the chart below. The first one is the price objective of the big H&S topping pattern that measures down to the 106 area as measured by the blue arrows. The second price target is based on our bearish expanding rising wedge as being a halfway pattern. This price target is measured from the breakout of the big H&S top to the first reversal point in the blue bearish rising wedge. Add that measurement to the breakout of the blue expanding rising wedge to get your price objective down to the 65 area, red arrows.

I know it seems impossible at this time for such a low price objective but when I look under the hood of the precious metals stock indexes there is still a lot of room to move lower for many of the big cap stocks. Until something changes this scenario this is what the charts are telling me. Having capital when the PM complex is finally finished going down is going to be key in taking advantage of the bargains that will be there for the taking. That’s the bottom line. This week I’ll update some of the big cap precious metals stocks again as that’s where the real story lies.  All the best…Rambus

Today’s price action gave us a very important clue that a major shift is brewing in regards to the precious metals complex and most likely commodities as well. These kinds of days don’t come around very often but when you see such a massive move during the day time trading hours you need to pay attention. I know today’s price action may be very frustrating for some of you but It’s all part of the game we choose to play. It’s days like today that separate the winners from the losers. This is the point where many will throw up their hands and say ” I quit this is just to hard.” But in all honesty this is the point where you can grow as an investor because you have survived one of the best shots the markets can throw at you. Now it’s all about analyzing what happened today and moving forward.

Today we got the biggest clue we could ask for. The almighty dollar finally gave us the answer we’ve been waiting for. As you know I’ve been bullish on the dollar for quite sometime waiting for it to show its hand. Today was the day. Early on in its development I showed the potential for a Diamond pattern that I believed would breakout to the upside. Today we got the breakout but it was to the downside. I always talk about the number of reversal points a pattern makes because it can tell us if it’s going to be a consolidation pattern or a reversal pattern. An even number of reversal points equals a consolidation pattern that will breakout in the direction of the move leading into the consolidation pattern. An odd number of reversal points tells us the congestion area is going to be a reversal pattern. As you can see on the chart below the Diamond has 11 reversal points making it a reversal pattern to the downside. Also note the big long daily bar today. This is what a breakout looks like. Today’s breakout move in the US dollar is a  pivotal event that is going to change things at least for the intermediate term. After all these months of waiting for the dollar to finally show its hand today was the day. It’s now possible we could see a backtest to the underside of the blue diamond around the 80.80 area before it moves down in earnest.

The breakout in the dollar gives us perspective of where we are in the scheme of things which is important to know. This next chart is a combo chart that has the US dollar on top and gold on the bottom. If you recall our diamond pattern originally started out a an expanding triangle, reversal points one through nine. The gold chart shows it backtesting the bottom rail of the rising wedge pattern which so far is holding resistance. If gold can manage to close above that bottom rail that would be another very big clue that gold has some legs and could rally further. The bottom blue rail of the 20 month rectangle, at 1530, is by far the strongest resistance point that gold will have to overcome to really start a new major leg higher.

The blue diamond on the longer term look with the 50 and 200 dma crossovers. So far the 50 dma hasn’t crossed below the 200 dma yet but it’s now getting close.

This next long term combo chart for the US dollar and gold shows the dollar breaking below the rounding bottom that has been in place for many years. This is a big deal.  Again you can see how the 1530 area shows up as resistance for gold.

Let me show you one more chart for the US dollar that I don’t believe I’ve shown you before. As this rising wedge formed below the previous top it only needed an even number of reversal points to be a consolidation pattern. As you can see it clearly broke below the bottom rail today signaling the rising wedge is a bearish rising wedge. The price objective of a rising wedge, when it has broken to the downside, is where the rising wedge first started to form. In this case the low around the 73 area would be the price objective.

Below is a daily gold chart that looked very negative up until 1 pm today. Now I would have to rate it as neutral until it can trade above the neckline and the bottom rail of the rising wedge.

Lets take a look at gold that shows the rally today stopped right at our overhead resistance at the 1360 area. A move back inside the rising flag would be constructive.

About a month ago we tried our hand at going long the precious metals sector for the third time in the last year or so. We loaded up on a bunch of precious metals stocks and the long 3 X gold and silver eft’s. Below is the original chart I posted at the time that showed how a possible inverse H&S may form based on the Chartology of the chart. I have not touched this chart since I posted it in the, “Another Brick in the Wall post”.

http://rambus1.com/?p=15900

Today’s price action bounce off of the 1300 area which was critical for this potential scenario to play out. It looked like earlier this morning that gold was cracking the bottom neckline symmetry rail. By 1:15 it was obvious that the 1300 held as support. As you can see gold is now trading right into overhead resistance backtesting the bottom rail of the uptrend channel. I need to tweak the neckline down just a tad as gold failed to reach my price objective up to the 1455 area. I will also have to tweak the neckline symmetry rail just a tad as it runs parallel to the neckline.

Below is a weekly chart that shows the potential inverse H&S bottom that still has alot of work to do yet before we can say it’s complete. Today’s bounce at 1300 goes along way in the development of the possible H&S bottom.

Based on the long term look at where support and resistance resides I built this chart that shows how gold could move higher. This would be a perfect scenario chart where gold would hit overhead resistance, fall back to support, rally back up to the next resistance rail, backing filling all the way up. Gold has a lot of work to do but if the June low is THE LOW this is how I would expect it to move. Once gold can trade above the top blue rail of the bullish expanding falling wedge that is when gold will be in the clear and can run to new highs. Right now gold is trading right in the middle of the possible bullish expanding falling wedge consolidation pattern.

Tomorrow we’ll look at the precious metals stocks and indexes. Today’s price action came right at the last critical moment to preserve some of the inverse H&S bases that had been forming since April in some cases. They aren’t some of the prettiest bases I’ve ever seen but they could fit the bill with just a little more work to the upside. Keep in mind that the precious metals complex is still consolidating or bottoming and today’s price action is very miniscule when one looks at the longer term monthly chart. Bases take time to build and I would like nothing better than for the precious metals stocks to be forming long lasting bottoms in here. We just have to follow the price action and see where it leads us. We should know more in the next few days if some of these bases are really going to mature and some sort of bottom is in place if even for the intermediate term. Stay strong…Rambus

Tonight I would like to show you some charts of what this nearly 10 week counter trend rally looks like compared to this downtrend that has been in place since the highs made one year ago. I want to start with a one year two month chart for the HUI that starts with the right shoulder top, for the massive H&S topping pattern, Big S. This chart may look a little busy but if you start at the top left side corner, Big S, you will see the downtrend channel that has been in place for one year now and shows all the consolidation patterns that have formed during this time. Looking at the top left side of the chart the first chart pattern you see is the black bearish falling wedge which at the time I thought would be a bullish falling wedge. Note the two day hard break below the bottom black rail of the bearish falling wedge. That was my cue that the black 5 point falling wedge was a reversal pattern to the downside. The red arrow and the purple vertical dashed line shows you where we took our first position in DUST, which is a 3 X short the precious metals stocks index, on December 3rd, 2012. As you can see we bought the backtest to the underside of the black falling wedge reversal pattern. We slowly kept building our short position as the downtrend unfolded. Take a moment and look at the downtrend channel starting at the top, following the price action bar by bar all the way down to the June low. You will see, for the almost one year decline, there wasn’t one time where the HUI made a higher high and higher low until the June low this year. So by following the price action we never had to sell our short position and just kept riding the downtrend. Notice all the small red lesser consolidation patterns that formed during the one year decline. They don’t look like much looking back but when you’re riding these little patterns out in real time it can make one insecure about the big picture and question if you are still on the right side of the market. I can always tell when subscribers start to get grouchy that the consolidation area is starting to get to them.

I now want to show the lower part of the daily chart that shows our current possible bearish expanding rising wedge. This pattern shows a different character than all the price action above. As you can see this blue pattern has made a series of higher lows and higher highs. The $64,000 question is, is this a bottom reversal pattern or a consolidation pattern that will show the way lower when it’s complete ? Right now the price action, over the last year, is trapped in a parallel downtrend channel. Notice the placement of the small double top at the top of the blue bearish rising expanding wedge and the top rail of the downtrend channel.  Is it a coincidence that the small double top formed where it did? Lets zero in on the latest price action that shows the black dashed down slopping  trendline that runs through the center of the blue pattern that is labeled a S&R rail, (Support and Resistance rail). Below it is resistance and above is support. You can see yesterday’s price action gapped below that S&R rail with today’s price action testing the S&R rail from below. You can also see the 50 dma comes in right here and now. We are going to have an interesting couple of days ahead of us as we watch how the price action interacts with the black dashed trendline and the 50 dma.

Lets look at the same area without the downtrend channel trendlines in place. As you can see it is obvious that we are in the biggest congestion area in more than a year. We won’t have confirmation of a continued down trend until the price action breaks below the bottom blue rail. The HUI is now trying to backtest the underside of the little red triangle that formed just below the double top.

Lets take a look at the other possible scenario that many are looking at which is the inverse H&S bottom. There is a certain symmetry taking place that has two shoulders on the left side of the head and with today’s price action we are now in an area where a second right shoulder could form creating the inverse H&S bottom. I’ve also put on two necklines that connect each left and right shoulders. Yesterday the price action gapped below the lower neckline with a backtest in progress today. In order for the inverse H&S bottom to have a chance the first order of business is for the HUI to break above the lower neckline.

Lets take a look at the daily line chart that show the potential symmetry taking place on each side of the head. Even though this inverse H&S bottom is not my favorite scenario right now I still have to keep an open mind for any possibility.

Lets put our one year downtrend into perspective by showing the massive H&S top and the price action that I showed you on the charts above that is the downtrend off of the right shoulder top. The first thing to note is this chart is in linear scale and shows the massive H&S top that has a price objective down to the 106 area. If our current blue bearish expanding rising wedge plays out to the downside we can expect a similar move that led into the pattern to take place as the price action leaves the pattern. I know it seems impossible at this time for such a move to take place but that is what will most likely happen if the bearish expanding rising wedge breaks down.

Looking at the same chart in log scale we get quite a bit higher price target for the HUI H&S top that comes in at 215 or close to the bottom of the blue bearish expanding rising wedge. Until something proves me wrong I’m looking at our current blue bearish expanding rising wedge as a possible halfway pattern to the downside with a price objective that would come in around the 112 area.

Now I want to look at some big cap precious metals stocks to see how much damage as been done during the last 10 week rally. Lets look at the longer term charts as they are much more important than the daily’s. Lets start with a look at AEM that shows the price action gapped below the bottom S&R rail in April of this year. AEM has made several attempts to rally back to the underside of the S&R rail as a backtest but so far without any luck. Note the most recent price action that shows the small double bottom that led to the 10 week rally that should now be offering support. As you can see the double bottom hump has given way this week. If AEM is going to form an inverse H&S Bottom it needs to find some support in this general area. Also note the nice big H&S top that broke down almost two years ago and the backtest to the neckline extension rail that  halted its advance.

The monthly chart shows 20 years of price action. Note the last two bars on the right side of the chart that looks more like a backtest to me than a reversal pattern to the upside.

Looking at the long term monthly chart for ASA we can see it broke below two important trendlines, the bottom blue rail of the expanding downtrend channel and the bottom rail of the black uptrend channel. As you can see the last 10 weeks or so have been a backtest move to the bottom rail of the blue expanding downtrend channel. This is a critical test taking place right now. So far it’s failing the test.

The AU monthly chart shows the beautiful reverse symmetry that took place during its one year decline that slammed into the 2008 crash low and has bounced. We’ll see if this is a dead cat bounce or something more important by the way the price action interacts with the 2008 crash low.

The last 10 week rally in BVN shows just some chopping action around the lower Support and resistance rail. It actually looks like it is trading at a 52 week low if it doesn’t rally pretty hard for the rest of this week. Note the reverse symmetry coming down compared to the rally phase that started in 2008.

The weekly chart for CDE shows an inverse H&S bottom that looks like it is failing. You can see the rally took the price up to the S&R rail which is actually the neckline on the monthly chart.

The monthly chart for CDE shows the breakout and backtest to the big H&S top neckline.

The weekly look at ELD.to  is showing another failed inverse H&S bottom. The ten week rally made a good  move toward backtesting the big H&S neckline but has fallen just shy or reaching it.

The long term monthly look at ELD.to shows some very nice chart patterns. Note the big black bearish rising wedge that has the neckline running through to top of it. Many times a rising wedge will encompass the left shoulder and the head as you can see. The backtest to the bottom rail of the rising wedge formed the right shoulder. Note the last two bars on the right side of the chart that show the backtest to the neckline over the last two months.

FNV used the 10 week rally to backtest the bottom rail of its bearish rising channel. It also looks like a possible H&S bottom that has formed just below the bottom rail is failing. FNV just experienced the the second backtest to the bottom rail of the bear channel.

The GFI monthly chart is begging for the price action to at the very least test the 2008 crash low.

The weekly chart for GG shows it used this 10 week rally to backtest the neckline at 32.35. The possible H&S bottom looks like it’s in trouble if it doesn’t find support pretty soon.

The monthly chart for GG shows it breaking below the neckline and the long term bottom rail of the uptrend channel.

The monthly chart for KGC shows how it used the 10 week rally to backtest the 2008 crash low from below. It has been one of the weaker PM stocks as it has already broken below the 2008 lows.

The last several months shows very little price action for NEM. It’s very close to testing the monthly low closing price that would go back to the same period as the 2008 rally. Again the 2008 crash low is begging for a retest IMHO.

Below is a weekly line chart for NGD that shows it used the 10 week rally to put in a right shoulder that will create a double H&S top if it breaks below the lower neckline.

It’s getting late and I need to get this posted. I have more examples of precious metals stocks that have used this last 10 week rally as a consolidation phase or a backtest to a much bigger topping pattern. Nothing is broken in the strong bear market the precious metals stocks have been in for the last year or so as far as I can see. This looks just like your normal backing and filling before prices start moving lower again. I hope these charts paint a clear picture for you of where I think we are in the bear market for the Precious metal sector. All the best…Rambus

Its been awhile since I showed you an updated chart for the Dow. As this long term weekly chart below shows everything is still moving along according to the game plan I’ve laid out. I’ve shown you many of these bullish rising wedges that appear on some of the major stock market indexes that have all broken out to the upside. These bullish rising wedges confuse a lot of trades as they see them as always being bearish. My interpretation of these types of patterns, that form in the same direction as the trend, tend to be very bullish as it suggests that investors are anxious to get in and aren’t waiting around for lower prices. Some may call these types of patterns running corrections. As you can see the Dow is possibly forming a smaller red bullish rising flag, which again shows investors aren’t waiting around for lower prices. We have just started the 4th reversal point to the upside. A breakout above the top red rail will signal the bullish rising flag is complete which I would then view as a halfway pattern. There are two ways I measure a halfway pattern. The first way is to measure from the breakout of the lower pattern to the first reversal point in the upper pattern, labeled reversal point #1 and add that measurement to the breakout of the upper pattern to get your price objective. The second way I measure a halfway pattern is to measure the impulse leg up that starts at the last reversal point in the lower consolidation, in this case reversal point #6 to the first reversal point in the upper consolidation. You are measuring the the first impulse leg. Again take that measurement and add it to the last reversal point in the red bullish rising flag to get your price objective. Many times these two methods will be very close in price to each other. If this possible red bullish rising flag plays out as expected it will look like it formed about the halfway point when the top measured move is reached. Note the beautiful H&S patterns that reversed both the uptrend and the downtrend and the one that was a consolidation pattern. This chart shows, by following the price action, and not trying to second guess every little wiggle that is made, one will always find they are aligned with the trend either up or down in the big picture.