This stock shows why you always pay attention to a H&S pattern regardless of fundamentals.

Below is the line chart that I’ve been showing that has the big H&S top in place. Remember a daily line chart takes the daily closing price only, added it to the previous days close, to build your chart. A line chart can takeout alot of noise that sometimes and can show a cleaner picture in some cases. As you can see on the chart below the HUI has had a clean backtest so far to the neckline at 484..I don’t want to sound like a broken record but that’s a very large H&S top that is complete. The further we fall below the neckline the big H&S top will start sticking out like a sore thumb. Its truly amazing to me that no one is seeing this massive topping pattern. I think everyone is so focused on the precious metals stocks, that have to go up, that they aren’t seeing the big picture. All I read is its time to buy because of all the bargains and how cheap the precious metals stocks are. As we all know they can get alot cheaper before the bottom is actually in. I have placed the next price objective down at 430 which was the bottom of the rectangle consolidation pattern made on the way up. It wouldn’t surprise me if we got a nice counter trend rally back up to the neckline and build out some symmetry on the right side of the chart equal to the left side once we reach 430.

So far TRX has been reversing symmetry to the upside after the vertical move lower last fall. I’m going to move the sell/stop up to 4.92 to lock in any profits.

Last week was one of those weeks that we can label as an inflection point. By that I mean we broke below some critical support rails on the daily bar and line charts of the HUI. The HUI hit an 18 month low that goes all the way back to August of 2010.  Maybe it was just a false breakout or maybe not. Its going to take alittle more time to actually confirm that the top is in but its now in the bull’s camp to to show it’s in control. The bears have already moved the HUI to an 18 month low showing they are in charge for the time being. I still think last weeks action is a big deal and not to be overlooked lightly. I’ll will try and show some charts that may point to lower prices once the breakout and backtesting period is over.

The first chart is the Diamond and H&S combo chart where both patterns are one of the same. You can also add the expanding triangle to that chart as well. Call it what you will but the bottom blue rail is the most critically important rail on that chart below. There is a gap around the 495 area that hasn’t been filled yet. That gap area would be my best case scenario for the bulls if they can achieve it. The first resistance point is the backtest to the bottom blue rail that we hit in last Friday’s rally at 475.

The next chart is a daily line chart that shows the H&S pattern pretty clearly. There are 2 left shoulders and 2 right shoulders with a nice head that is higher than both shoulders. A line chart generally shows the breakout alittle bit earlier than the bar chart will. As you can see the backtest to the neckline is at 484 which is about 10 points higher than the bar chart. If this H&S top patterns starts to play out to the downside, after the backtest takes place, the chart below shows where we may see our first counter trend rally off the 430 area that saw support back in 2010 at the bottom of the rectangle. The top of the rectangle is about 495 that I think has been offering support, allowing for the neckline to develop in a slightly declining manner. This weeks action finally broke through the top of the rectangle support and now the price action will target the bottom rail of the rectangle at 430 or so where we may get a counter trend rally all the way back up to the big neckline we are attempting to breakout of right now.

The next chart is a weekly bar chart that shows the HUI has been in a downtrend channel. Note the uptrend channel on the left side of the chart, higher highs and higher lows. Now look to the right side of the chart and the downtrend channel where the HUI has been making lower lows and lower highs. This is basic technical analysis.

Lets see if the XAU has formed a H&S top. As you can see last weeks action took the XAU just below it’s neckline. We are still very early in the breakout process that may continue for several more weeks or so before we get total confirmation. Notice the H&S top on the left side of the chart. Some of you may remember the consequences of not believing that pattern when it took place. I have repeated several times in the past never ignore a potential H&S top. If it doesn’t workout you can always get back in but on the other hand if it does workout and you didn’t act accordingly then be prepared to suffer the consequences.

Lets look at another potential big H&S topping pattern that is still forming. The CDNX is a small cap Canadian index that has many small cap mining stocks along with some small cap oil stocks. Its a good proxy for the junior precious metals stocks. There is still some work to be done but the symmetry  is pretty awesome.

Lets look at some longer term H&S tops, in the precious metals stocks, that will show the same big neckline that is close to 18 months or so in the making. Some will already have broken the neckline, while some are still above their necklines.

AU has a very long neckline that broke to the downside two weeks ago. You can see there is a possible backtest to the 40 area to complete the breakout and backtest.

The monthly look really tightens up the H&S top pattern.

Next lets look at the potential H&S top for CDE which is still trading above the neckline.

The monthly look shows how the double top extension rail acted as resistance on the rally phase off the 2008 bottom. There is also a bearish rising wedge in play.

The next chart that has the big neckline is one of the star performers since the 2008 crash low. As you can see FCX is still quite a bit above it’s neckline but the symmetry is there to finish off the right shoulder.

Lets tighten up that big H&S using the monthly chart. Note how the big H&S base, with the neckline extension rail that was made at the turn of the century, held support on the 2008 crash low.

SA shows the big neckline that it broke below 6 months ago and has just finished up another backtest.

Lets look at one more chart with the big support and resistance rail. SSRI broke below it’s big S&R rail last year and had a nice backtest before it began to fall in earnest.

As you can see from the charts above that the big 18 month neckline is a key component in alot of precious metals stocks. Some have clearly broken below, some are getting close to breaking below and some are still above their neckline with a ways to go yet. As with any index most stocks don’t always break down at the same time. The weaker ones usually lead the way while the stronger ones will take their turn last. For alot of the precious metals stocks, that make up the indexes, there is still some work to do in regards to the breaking out and backtesting of their individual chart patterns. The bottom line is we can see the backtest taking place over the next several weeks before finally confirming the trend is now down instead of up or sideways as has been the case for the last 18 months or so with many of the big cap precious metals stocks. So we are at a major inflection point right here and now. Its up to the bulls to take the lead if the precious metals complex is going to rally to new highs. The burden of proof is now in their hands.

Today we are getting the backtest to the bottom rail on the diamond bar chart at 475. This is a very critical test taking place right now.

Below is the line chart of the H&S top formation. With the line chart the backtest can go as high as 485 or so. This is one of those critical points, when trading the markets, that one has to decided if this is the beginning of something or a stopping off point to lower prices. If you believe this is the beginning of a new bull move then you buy your favorite stocks or hold what you have. If you believe this is just a backtest to the breakout area then you either lighten up on your stock positions, go to cash or go short. There are many options right here and now to consider.

Another surprise to the downside. They will all take their turn when the time comes. This doesn’t happen in a bullish environment.

GOLD 7 point bearish rising wedge breakout.

Gold and silver have been in corrections since they both had exceptional rally phases that topped out last year. Gold topped out with a double top, one high in August and the other high in September. Silver topped out much earlier as it’s rally phase started earlier than gold’s. Silver topped out in April of last year and the correction is now getting close to one year in the making. Both corrections are taking on the shape of a falling flag or downtrend channel with silver’s further along in it’s development. As you know I have turned cautious over the last several weeks as these consolidation patterns are still not suggesting that they are close to being completed. Just the opposites it true. Lets start with Gold as it has been forming a smaller consolidation pattern inside the bigger downtrend channel.

On the top left hand corner of the 8 month daily chart below you can see the double top that halted gold’s rally off the 2008 crash low. Once the double top gave way it only took 3 days to find the first bottom at the 1530 area. That first low is the beginning of our most recent consolidation pattern that is shaping up as a rectangle. Over the next 6 weeks or so gold found it’s first high at the 1800 area where it then went on to form a H&S top that signaled the next leg down would begin. That H&S top measured down to the 1526 area that was real close to the first leg down off the double top. That low at 1526 marked the 3rd reversal point in what now looks like a rectangle pattern. The next rally phase took prices up to the original high at 1800 where again gold ran out of steam as an unbalanced double top formed. Gold broke off that unbalanced double top with the flash crash signaling the top was in. As you can see we are presently trading below the double top hump making lower highs and lower lows.

The next chart shows a year and a half of trading that will give you a longer perspective so you can see how the possible rectangle fits into the bigger picture. We closed Friday right on the thin dashed blue rail that is the halfway point in the rectangle at 1660. This center rail usually acts as support or resistance depending on which way the price is moving. The rectangle will not be completed until we reach the bottom blue rail at 1530 or so at which point one of two things will occur. The first scenario is that the rectangle will be a consolidation pattern and gold will decline further down to the 1400 area as measured by the blue arrows. This is the preferred scenario.  The second thing that could happen is that gold bounces off the bottom rail of the rectangle around the 1530 area and rallies back up leaving a fifth reversal point signaling the rectangle could then be a reversal pattern to the upside. At this point its still alittle too early to say which scenario will play out but looking at the longer term chart and the 6 month time cycle chart may give us some clues as to which pattern will eventually prevail.

Next lets look at a weekly chart that shows the 6 month time cycle with  Fibonacci retracements. Before we go to the 6 month time cycles we need to look at the 65 week moving average that has been one of the best moving averages for finding the bottoms in gold. After gold hit the 65 wma on the second leg off the double top, support was found  which led to the rally back up to 1800 top blue rail of the rectangle. As you can see by looking back to just after the 2008 crash low the 65 week ma was never violated. That was also the case before the 2008 crash so this is a critically important moving average to keep a close eye. Now onto the 6 month time cycle that has been most accurate since the 2008 low calling every low except the very first one on the breakout of the 6 point expanding falling wedge which was inverted. As you can see the next cycle low is due in late June which is only 3 months away so there is still plenty of time for gold to chop around before putting in the next important bottom. I’ve added 2 Fibonacci retracements, one at 38% which comes in at 1449 and the 50% retrace that comes in at 1302 or so. When viewing  this chart below notice the blue 6 point expanding falling wedge at the bottom left side of the chart that was the big correction of the first major advance of the bull market. Notice all the small red consolidation patterns that formed during the next major impulse leg up that ended with the top at 1920. Now to put our current blue consolidation pattern into perspective, think of all the action between the two big blue consolidation patterns as a major impulse leg, with the two bigger blue consolidation patterns as bookends. We are currently just correcting that big 3 year rally that came to an end at 1920 beginning of our current consolidation pattern.

Just one more long term chart of the bull market for gold that goes all the way back to it’s beginning in 2001. The takeaway from this chart is the very nice clean uptrend channel and the bigger patterns that have formed at roughly the halfway point in each leg up. The top rail of the major uptrend channel has 3 major touches while the bottom rail only has one so far. Using the 6 month time cycle on the chart above I added a possible price objective for time and price that comes in around the 1325 area sometime in late June or July where the bottom rail of the major uptrend channel comes into play. Note the RSI at the top of the chart that has a topping pattern in place and also the MACD that has now crossed to the downside. The blue histogram is also below the zero line signaling weakness.

What these charts say to me is that gold is in a correction after rallying for almost 3 years off the 2008 crash low. This correction we currently find ourselves in is pretty normal when looking at the long term chart above. What is so painful is that the precious metals stocks have not participated in gold’s rally which makes this otherwise normal correction seem very extreme in nature and skews our emotions. July has produced some very good bottoms for the precious metals stocks in the past. This year July may very well provide the precious metals complex with a most excellent bottom to pick up some bargains that will surely materialize if these charts play out close to expectation.

In this report I want to focus on just some simple but effect indicators such as moving averages and Fibonacci retracements. The first chart shows some daily moving averages that have come into play at some point in the bull market. The 150 dma has been one of the best short term moving averages for identifying bottoms and the 300 dma has been very good for the longer term. Then of course you have your 50 and 200 daily moving averages that come into play from time to time like right now for example. Gold is currently being supported by the 50 and 200 dma with the 300 dma support coming in at 1593. I would like to see gold start trading above the 150 dma which has been very good support in the pasts.

The 10 month ema has done an outstanding job of holding support for most of the bull market. During the 2008 crash low the 10 month ema closed below the price action for about 3 months where it quickly recovered and held support until our most recent consolidation pattern. During our recent correction the 10 month ema close below the price action only one month where it again recovered quickly. The current 10 month ema comes in at 1624 which is just below the low made so far in March.

The last moving average I would like to show and is probably my favorite is the 65 week ma. As you can see on the chart below the only time it has failed was during the 2008 crash. In every other instance the 65 week ma has held support. Even our latest correction held support at the 65 week ma.

The next gold chart I would like to show is the Fibonacci retrace of our latest correction. After hitting the bottom in late 2011 gold went on a nice run higher up to 1792 where we got the flash crash almost 2 weeks ago. So far the fib 50% retrace has held support.

The last chart I would like to show is a very long term chart that goes all the way back to the 1980 bull market high in gold. This long term chart of gold is probably my favorite as it has been playing out for many years now. Its also a good study in support and resistance. What this chart shows is how each level, cup and handle, has doubled in size, blue and red arrows. If you start with the first cup, at the bottom of the chart, and add that measurement to cup #2 you have a double. Then if you take the distance of both cups 1 and 2  together, and add them to the top of the 2nd cup you  again get a double with a  price objective to the top of cup 3. Our last move to 1900 was a double of the preceding 3 cups. There is also a nice H&S base that started in 1980 and finally broke the neckline and cup #3 in August of 2007. From that point the bull market doubled again to our recent high at 1920. This chart has now done everything it was designed to do so I don’t know if there is any more to expect from it. I just doubled the whole bull market from the bottom in 2001 to our most recent high, just for the heck of it, which gave me a price objective to over 14,000. I really don’t think gold will go that high so I’ll just keep it on file for future reference.

This Afternoon I would like to show you the very long term chart of the US Dollar that goes all the way back to 1986 where it topped out at 160. As you can see on the chart below it has been in a confirmed downtrend that is still on going. What I want to focus on is the blue downtrend channel that began in 2000 at 120. The top and bottom blue rails are perfectly parallel with each rail having two hits on them. Now I want to focus your attention on the red horizontal pattern. At this point the only thing I can name it is a 2 1/2 double top. I’ve seen this pattern on other stocks that can show up at a bottom also. Whenever I see a horizontal trading range like this, similar to a rectangle, I always put in a center line in the middle of the consolidation pattern. This is the thin red dashed horizontal line. You can see how this center rail has halted the advance in the dollar since 2011 with the last touch about 2 1/2 months ago at the 82 level. The dollar is currently trading just under 80 so we are nearing the strong resistance points where the top blue rail of the center downtrend channel and the red dashed horizontal rails converge, green circle. The red 2 1/2 top halfway pattern has a measured move down to 52 sometime in 2015 which is only 3 short years away. A subscriber asked me the other day what will it take to finally get the precious metals stocks into rally mode. This long term chart of the dollar is your answer. We are within one or two points of reaching the strong resistance point at 82. As the dollar is looking for a high right in here I think the precious metals stocks are looking for a low right now which makes perfect sense. Jim Sinclair used this chart several years ago in one of his commentaries on the US Dollar. As this is a long term monthly chart its still the same chart with only the red halfway pattern developing within the blue downtrend channel that is new. One last note on the dollar chart. There was a bullish rising wedge that formed as a halfway pattern back in the late 1990?s that measured to the last major top in 2000.

all the best Rambus