I just want to update some of the precious metals stock indexes since the breakdown from last Friday. Whenever there is a gap at an important trendline I always pay close attention as it might mean there is something bigger brewing. That big gap last Friday came at a most critical spot on the HUI chart.

Below is a 30 minute chart I’ve been showing that has two gaps. One was made on the way up and the other one was made last Friday on the way down. Those two gaps, green circles on the chart below, show an island reversal pattern. You can call the top an unbalanced looking H&S or expanding triangle if you draw the trendlines alittle different. We hit the price objective this afternoon and got a good bounce.

HUI 30 minute island reversal with a H&S top.

We are going to work our way out in time to put everything into perspective and see how these minute charts look in the big picture. Next is a 60 minute look that shows a possible bear flag. Also the top could be classified as an expanding triangle or an unbalanced H&S. The expanding triangle is pretty much what the other gold stock indexes formed. The brown area is where we were looking for support until the big gap down. That big gap took out the brown horizontal support zone and the bottom red rail of the expanding triangle. Today’s decline stopped at the bottom blue rail of the possible bear flag that has  been forming since the December 29th low. So now we have broken support from the horizontal brown area and now we have support at the bottom rail of the possible bear flag. Keep that picture of the possible bear flag in the back of your mind until we start to look at the longer term charts.

HUI 60 minute look showing a big gap over the brown horizontal support zone and support at the bottom blue rail if possible bear flag.

Next lets look at 5 month daily chart so you can see the possible bear flag. You can see the rally stalled out after the gap was closed around the 550 area, gap closed. We are also trading below the 10 dma which has offered decent support and resistance for the short term in the past. Its possible we may get a backtest to the neckline at the 530 area if the PM stocks show alittle strength over the next few days. The bottom blue rail is now our most important support zone.

HUI 5 month daily look showing the possible bear flag and a possible backtest to the neckline at 530.

Lets look at another daily chart that show why the big gap last Friday was so negative to the overall bullish picture at that time. You can see we had a nice breakout move above the top blue rail of the expanding falling wedge. That big gap took out two critically important support zones in one move. You can see the price action on Friday and yesterday found resistance just below the blue top rail of the expanding falling wedge. It has reversed it’s role from support to now resistance. If we were in a strong bull move we shouldn’t have violated the top blue rail like we did. Also note the crossover of the MACD at the bottom of the chart.

Next lets look at the line chart that shows another failed support zone from a horizontal perspective. The red circles shows how support turns into resistance and resistance into support. The HUI should have caught support at the horizontal rail at 526 but it didn’t happen. Another clue that shows the bears are in control for the time being. Note the little double top at our last little high. Also with the last move higher we could start to make a case that the whole big trading range over the last year or so could be an unbalanced H&S top as the line chart is showing. Nothing will be confirmed until we take out the lows if that happens. One step at a time.

HUI daily line chart showing failed horizontal support and possible unbalanced H&S top.

Lets step out to the weekly look and see what the big picture is looking like. You may recall this pattern of the diamond formation that I put on the back burner for awhile. Technically we broke out of the diamond, to the downside in December, and then we had the fed announcement that they were going to keep interest rates low for sometime. We got that one day wonder of a rally that looked like the real thing at the time but as you can see we have given up most of those gains. Note the 4th bar from the right side of the chart. That long bar was the fed announcement. I’ve extended the top and bottom rails of the diamond to show the real support and resistance, blue dashed rails. Note the little red uptrend channel at the end of the diamond. That is the same pattern I showed on the minute charts above. You can see how that little red pattern could be significant going forward. One last word here is that until we takeout the bottom blue dashed rail at the bottom of the diamond there is still hope that the situation can be saved. A break of the bottom dashed blue rail will confirm a top is in.

I want to show you one more chart that I posted last weekend of the HUI. This is a weekly chart that shows the importance of the support and resistance rail. Above it is positive and below it will be negative. We are still comfortably above it right now but going back to the the possible bear flag that I showed you on the minute charts that pattern could be a game changer if it breaks to the downside. Again we have to take it one step at a time and let the market tell us of her intent. The one thing is,  I don’t want to be caught looking the other way if she has something else in mind. I know almost all precious metals analysis out there are super bullish right now. So many are basing  there decisions on the 1970 bull market which may or man not work out. I can tell you that very few investors got out at the top back then as many were calling for much higher prices just like the tech bull market. Maybe we have several thousand points to go to the upside for gold and that would be fine because we will be able to look at the charts and jump back in if that is the case. But if the diamond turns out to be a top of some kind most won’t get out and will ride the whole wave down. I’m not saying the major top is in, I’m just trying to make you aware of the possibility that’s all. We still have alot of work to do before we jump to any conclusions. I’m not looking for a crash similar to 2008 but more of a grinding down type move similar to the left side of the chart as shown by the chart below.

HUI weekly diamond with possible bear flag forming.

This last chart I want to show you is the HUI to GOLD ratio chart that shows you why you have felt so much pain in the precious metals stocks. Until this ratio starts to show some improvement the pain will not let up. As you can see we are very close to making a 3 year low where the gold stocks have underperformed gold.

So this is the situation right now. I think we have to be on the defensive right now since the breakout gap last Friday. This not to say the situation can’t be saved because it can. But we have to respect what the charts are saying. Until the the HUI to gold ratio starts to improve it will be tough sledding for the PM stocks. I will probably wait another day or two and see what develops before I make a decision on the model portfolio stocks. There’s an old expression that stated, better safe than sorry, and that couldn’t be more true in the stock markets. All the best Rambus

But its a secret !

Look but don’t Tell….shhhhh

Fully

I have spent this weekend updating the model portfolio. Outside of NSU nothing looks broken. We had alot of the stocks hitting their respective blue and red resistance rail and bouncing off instead of pushing through. It’s frustrating to see this happen but what it tells us is that we are still in the consolidation mode. When you look at the model portfolio stocks there are several things I would like you to observe. First is all the big blue consolidation patterns that are over a year in the making for most. Compare them to some of the previous big blue consolidation patterns that you  will we see on the chart and how the breakout and backtests worked for them. Also note how many of these big blue consolidation patterns have a red triangle or red bull flag that has been forming toward the, hopefully the end of the blue consolidation patterns. One other thing I did was put a green circle that shows the last 3 weeks of trading since the big fed announcement about keeping interest rates low. The setup was there for a move through the top blue rails of the big consolidation patterns but most have stalled out at that critical spot. Its hard to say at this point what will happen next. We may just keep trading in the big blue consolidation patterns for awhile or make another run to breakout. Stay tuned as I’ll be watching things very close on the future direction of the model portfolio that has a huge potential once everything is aligned to the markets liking.

NOTE : Each of the 23 Model PF Charts has been updated and linked to the Symbol on the right sidebar ….for expedience Subscribers can view each and every one by simply clicking on the stock symbol

USLV has slightly broken the bottom red uptrend rail and has been hanging around the breakout point for most of the day. We are going to sell our USLV right here and take out profits on the kamikaze trade. We will be looking to go long again toward the bottom of the trading range around 40 or so.

USLV daily look showing a break of the bottom red trendline. Taking Profits.

Below is a 30 minute chart that I posted yesterday that shows a bearish expanding falling wedge. The bottom rail held support yesterday and we had a big gap up this morning. Nothing is broken yet. We are still in the chopping mode. If the dollar can get above the top rail that would not be good for the precious metals complex or the stock markets. On the other hand if the dollar breaks below the bottom rail then the precious metals complex should benefit greatly as a new down leg would be underway for the dollar. This is your typical consolidation pattern at work trying to frustrate both the bulls and the bears alike.

UUP 30 minute bearish expanding falling wedge with big gap this morning.

Below is the daily look that shows the support and resistance rail just above today’s price action. The colored arrows shows how the S&R rail has reversed it’s role with the last red arrows showing resistance. Until the the UUP can break back above the S&R rail we have to believe it will hold resistance.

UUP daily look showing the support and resistance rail still functioning at this time.

The Euro is now at a critical test of resistance at the old neckline of the one year H&S top. Its just as important to know when a good pattern works and when they fail. You can see the big H&S top, on the Euro chart below, along with alot of lesser degree H&S patterns. The dollar has an inverse look to the Euro’s H&S top with it’s own H&S bottom. So what the Euro does will have a direct impact on the dollar and visa versa with the dollar. If we can get the direction right for the Euro and the Dollar that solves the biggest question of what direction the stock markets, commodities and the precious metals are likely to travel. When the neckline was broken to the upside in early December all look good for the Dollar  and bad for the Euro. We have now rallied all the way back up to the neckline as a backtest for the Euro. Normally this would be the end of the story as the backtest is the last step in the breakout process. Note the little inverse H&S bottom on the lower right side of the chart. If that little inverse H&S plays out that will put the price back above the big 1 year neckline negating the big H&S top. As you can see we are now testing the big one year neckline from below. Don’t be surprised if we see a big gap up in the next day or two. This Euro chart is telling us that if we start trading above the big one year neckline, that for the time being, the can is going to be kicked down the road for the foreseeable future and all will be right with the world again.

Euro 2 year daily look showing small inverse H&S bottom forming just under big one year neckline, red circle on chart.

Below is a chart of the US dollar and it’s big one year H&S bottom, inverse look to the Euro. As you can see on the dollar chart it has already broken back down below the neckline that should have held support on the backtest. There is also a small red bear flag that has formed just below the neckline which is a bearish setup if the bottom red rail gives way. Note the big negative divergence on the MACD at the bottom of the chart.

US dollar with it’s own H&S pattern that is inverse to the Euro.

I think the stock markets and gold are already telling us that the dollar is going to keep going lower in the intermediate term, and the Euro is headed higher. This will confound many that are calling for an eminent correction in both the stock markets and the precious metals…All the best..Rambus

Just a quick update on the UUP that shows another test of the support and resistance rail from below, red arrows.

I guess today is a good day to look at how support and resistance works. In the other two post this morning, on SLV and the UUP,  I showed how resistance turns into support when broken and how support when broken turns into resistance. The last time I showed this chart of the Dow we had just broken out from the red bullish rising flag pattern. Notice where that bullish rising flag formed. Right on the neckline of the H&S consolidation pattern. Again resistance turns into support when broken to the upside. You can checkout the other black dashed trendlines on the chart below to see several other fine examples of how support and resistance reverses its role once broken.

Dow daily backtest to top rail of bull flag looks complete.

While were on the Dow lets take a quick look at the Elliot Wave count I showed several weeks ago in the weekend newsletter. So far nothing looks broken. What we need to see, fairly soon, is a breakout into new highs for this move, above the 2011 H&S top. This move should be fairly straight up until we get to the top of wave 3. If the pattern stays the same we should get a 4 to 5 week correction, wave 4 down blue circle, and then the last move up to finish off wave 5 where we should get a bigger correction.

Dow weekly Elliot wave count.

Besides the Stunning Weekend Report

Rambus has posted 26 individual posts of Stocks (for members only)

22 Stocks plus GDXJ NUGT UGLD and USLV

The 22 Stocks plus GDXJ are listed in alpabetical order under “Model Portfolio”

The other 3 are in “Kamikazi Trades” as they are 3 X ETFs

Rather than trying to scroll back and access each post…I recomend you just click on the Individual Stock Tickers on the sidebar

This will bring you to the latest TA for each individual stock

There is a lot to absorb right now….so take your time

Fully