Today were going to look at the HUI from top to bottom. Its been a long two year drought for most of the precious metals stocks. When silver had it’s near parabolic move higher last year the stocks barely budged and even declined in many case. Same thing when gold had it’s big move later in the year. The frustration felt by the precious metals stock investors was beyond frustration. How could gold and silver have such big moves and the underlying stocks actually go negative. All I can say its the nature of the markets to make life as difficult as possible, to wear one out with frustration, and then when the investor finally can’t take it anymore he quits in disgust blaming everybody and everything for his failure. Remember we are competing against the best and brightest investors around the world who want your money. This is a game where only the strongest and smartest survive. So keep those thoughts in mind the next time you put your hard earned capital in markets. If it was easy everybody would be millionaires and we know that can’t happen no matter how smart we think we might be.

Friday I did a post on the HUI showing a two year bullish rising channel, bullish rising flag or running correction, whatever you want to call it. I showed how the symmetry should play out with the move off the 2008 bottom equaling this new move I see coming for the HUI and the precious metals stocks in general. I know many of you out there think its impossible for the HUI to have such a big rally in just over a year so I’m going to show two charts, one from the Dow rally off the 2002 -2003 bottom that was the first crash low off the secular bull market top in 2000. The second chart I’m going to show you is the COMPQ  and the final move into it’s parabolic top at 5132 in 2000.

First, these patterns I’m about to show you happen all the time on different time scales. What amazes me is how few chartists actually see these patterns for what they are worth. They work just like any other consolidation pattern and generally show up as a halfway pattern. The patterns I’m talking about are the bullish rising wedge and the bullish rising flag or channel. They can also form in a down trending market as a bearish falling wedge and a bearish falling flag or channel.

The Dow formed a beautiful 6 point bullish rising wedge in the middle of it’s bull move off the 2002 – 2003 low to the 2007 high. That high in 2007 led to the infamous stock market crash of 2008. It took alittle over 3 1/2 years of sideways to upward chopping action to carve out the eventual bullish rising wedge. Not once during the formation of that pattern did the Dow ever make a lower low or lower high. Six months after the breakout through the top blue rail of the bullish rising wedge there was one last backtest, that for me, confirmed the pattern and that we  would see a similar move higher equal to the first leg up off the 2002 – 2003 bottom. The way I measure these type of patterns, or any other consolidation patterns for that matter, is to measure the impulse leg up leading to the first reversal point in the consolidation pattern. Then I add that distance to the last reversal point in the consolidation pattern to get your price objective. On the Dow chart below the blue arrows shows how the bullish rising wedge worked out almost perfect, as a halfway pattern. The red rectangles shows you how the lower impulse leg up matched the upper impulse leg up in time and distance.

Dow monthly showing the bullish rising wedge as a halfway pattern.

The next chart I would like to show is weekly look at the COMPQ that shows a beautiful bullish rising flag that showed up smack dab in the middle of it’s last major leg up that ended in 2000. How many of you traders out there would have recognized that pattern for what it was worth and sold at top of the bull market. When you see these patterns show up in big moves like that you know that either the bull move is over, or that in the very least, a big consolidation will start. If one would have acted on what the bullish rising flag was showing he could have gotten out right near the top preserving the big gains from the massive bull market. I know from fist hand experience that very few recognized the big top in the COMPQ  back in 2000. As is usually the case  many of the experts were saying we are in a new paradyme and the markets where going to just keep on rallying. It was really hard to think outside the box back then as everything was being hyped up to no end. But just a simple chart pattern gave you everything you needed to see, that was happening in real time, a clear cut signal as to when to exit the markets. No second guessing. No emotional turmoil as what to do. Just a black and white signal to exit the markets. Below is the chart of the COMPQ that shows the bullish rising flag, as a halfway pattern, in the middle of the last big impulse leg up to the 2000 secular bull market high at 5132.

COMPQ weekly look showing the bullish rising flag as a halfway pattern.

Now that I have shown you how important it is to recognize these types of patterns its now time to look at the HUI and the implication of a very similar setup to the two charts above. After the precious metals stocks crashed in 2008 the HUI had a very good rally that lasted just about a year and recovered all the ground lost during the crash. From that point, at the end of 2009 is where our current bullish rising flag started to form. Its been a two year upward chopping move that has frustrated gold bugs to no end. Everytime it looked like a breakout was eminent the precious metals stocks would sell off hard. So now we find ourselves at the bottom of the bullish rising flag. The rally over the last week or so has left a bottom in place that just may be “THE BOTTOM”. Note the green arrows and their implications .As with the two charts shown above, we have the first impulse leg up off the 2008 low, the two year rising chopping action, with the now strong possibility of the second halfway impulse leg just getting started that will take the HUI up to 1645 in just over a year from now. I can assure you no one is looking at the HUI from this perspective as these bullish rising patterns are off the radar screen for most chartists.

HUI weekly bullish rising flag halfway pattern.

Bottom line is we now have a road map in which to follow this next impulse leg up in the HUI and the precious metals stocks in general. I can tell you right now that when we hit that price objective of 1645 a year from now the hype will be so strong that it will be hard to let go of your precious metals stocks. I’m not saying its going to be the end of the bull market but that a big correction, at the very least, will be in play going forward. So there you have it a road map to 1645 on the HUI in just over a year from now. Stay tuned for further developments. All the best … Rambus

Just a quick update on the UUP dollar etf. We have now firmly closed below the big one year neckline. This is the reason I moved the stop up last week to persevere any profits some might have had. Its just as important to know when something is not working vs when something is working. The rally should have moved up and away from the neckline after the backtest and the longer it lingered there the more doubt it showed. Anyway this should now be good for the precious metals complex and the stock markets going forward.

UUP false breakout.

Today were going to look at the HUI from top to bottom. Its been a long two year drought for most of the precious metals stocks. When silver had it’s near parabolic move higher last year the stocks barely budged  and even declined in many case. Same thing when gold had it’s big move later in the year. The frustration felt by the precious metals stock investors was beyond frustration. How could gold and silver have such big moves and the underlying stocks actually go negative. All I can say its the nature of the markets to make life as difficult as possible, to wear one out with frustration, and then when the investor finally can’t take it anymore he quits in disgust blaming everybody and everything for his failure. Remember we are competing against the best and brightest investors around the world who want your money. This is a game where only the strongest and smartest  survive. So keep those thoughts in mind the next time you put your hard earned capital in markets. If it was easy everybody would be millionaires and we know that can’t happen no matter how smart we think we might be.

The first chart we are going to look at is the 60 minute look that is showing a rather strong unbalanced inverse H&S bottom. You may think that is not a H&S bottom but I can assure you I’ve seen these types of patterns play out before. Alot of times investors don’t see a pattern that is not text book in nature and won’t give it the time of day. Follow the neckline from the bottom left on up to the right side of the breakout, red circle on chart below. Notice how many times that neckline has been touched. We touched the neckline yesterday inter day, and that is why we had the mild sell off. The reaction yesterday took the price down to the previous high, horizontal black dashed rail where it found support. It also closed a small gap that was made on the open yesterday. Today’s action is exactly what we want to see. A strong move off the the horizontal support rail and the break of the neckline. Notice the big gap that is just above the inverse H&S neckline. That gap should get filled.

HUI 60 minute unbalanced inverse H&S with breakout and big gap overhead.

Next I want to look at the daily line chart that I’ve shown before showing the black dashed horizontal support and resistance rails. The last time I showed this chart we were looking at the 526 area, that was the previous low made on the way down, red circles on chart below. You can see how it stopped the initial rally dead in its tracks and the reaction that followed that took prices all the way back to the bottom of the big trading range. What this reaction did was create the second bottom of a double bottom reversal pattern. If for any reason we get a short term sell off the 526 area will now act as support.

HUI daily line chart showing support and resistance rails and our new double bottom.

Next lets take a look at the weekly chart that goes back to the 2008 crash low for the precious metals stocks. After a strong  one year rally, off the 2008 low, the HUI has been in a sideways trading range consisting of two patterns. The first pattern was a triangle and the second pattern is our current expanding triangle, both in red with numbered reversal points. I know it doesn’t feel like it but that 2 year bullish rising channel is what some would call a running correction. Folks this is a very bullish situation the precious metals stocks are now in. After two years of grinding torture it looks like this pattern is now maturing and we could very well be setting up the big move we have been anxiously waiting for. Note the slight positive divergence on the RSI at the top of the chart and on the slow stoch at the bottom of the chart. Also note the MACD is beginning to hook up and a crossover will set the stage for the next impulse leg higher.

HUI weekly 2 year bullish rising channel.

This next chart is what this post is all about. Here is what I think is about to happen with the precious metals stocks. We have been in a big drawn out correction for two years now. That is a big correction by any standard. What that 2 year bullish rising channel represents to me is, its a halfway pattern. If this plays out like I think it will this bullish rising channel will show itself as the middle point of a big rally that began off the 2008 crash low to the ultimate high that is higher than anybody is even thinking right now. All the pain and suffering over the last two years will be totally forgotten when  this move tops out north of 1500 over the next year. Thats right, 1500 over the next year. The rally off the 2008 low took about one year to reach the first reaction high on the bullish rising channel. If this is the last low we are  experiencing right now, at the bottom of the rising channel, it will take roughly the same amount of time to reach the top of the big black uptrend channel a year from now. This is how symmetry works in the markets. If you look at some of the charts in the model portfolio you can see similar action on a smaller scale, where the preceding rally, then consolidation, and then the rally out of the consolidation pattens, is very similar to the rally leading into the consolidation. Man that’s a mouthful. You may also notice, on some of the stocks in the model portfolio, have very large sideways consolidation patterns that will follow the HUI higher. They will be the leaders in the next impulse leg higher.

HUI weekly bullish rising channel halfway pattern.

We now have a road map to follow as this next upleg begins. There will be some hard shakeouts along the way,  just look at the first impulse leg up off the 2008 bottom. The hardest thing for most investors is going to be,  sitting tight for the next year as this next impulse leg unfolds. My job will be to find the best stocks to participate in this move to new highs by culling the ones that aren’t showing relative strength and adding the ones that are outperforming. Bottom line is our long anticipated move in the precious metals stocks may finally be at hand……All the best…..Rambus

I Believe Rambus is working on Seperate Charts to update his 10 PM Stock Pics which are presently listed under the Model Portfolio on the Right Side Bar…stand by for an update…lots of Work for the Professor

🙂

This week I’m going to look at the gold to silver ratio as requested by Sir riscott63. The first chart we are going to look at is a long term 20 year line chart that shows shows a huge 13 year rectangle. When this ratio if falling that means silver is outperforming gold. The ratio hit a high during the big crash in 2008 where gold had been outperforming silver for the last 2 years or so. From that high in the fall of 2008, point #4,  silver went on an unprecedented run that took the ratio all the way back down to the bottom of the rectangle where it didn’t stop at the previous lows. When it  broke the bottom rail of the rectangle it confirmed the rectangle was indeed a valid pattern. That low coincided with silver hitting it’s high for this bull market at 50.

Below is a 30 year chart of the gold to silver ratio showing where silver finally bottomed out at against gold that went all the way back to the old bull market in 1980 and again in 1983.  This chart really shows its been a very long time since this ratio has been as low as it was last year. Whenever I have a rectangle pattern I always draw in a thin dashed rail at the middle point of the rectangle, Sometimes the center point of a rectangle will act as resistance or support depending on which direction the move is taking place. Even after a clear breakout, a counter trend rally can make it all the way back into the center of the rectangle where it may reverse itself again in the direction of the previous move. I believe this gold to silver ratio maybe setting up this scenario. If you put this line chart to a bar chart you will see this ratio did make it up to the center dashed blue rail where it has reversed and maybe starting to head back down again. It could very well be that this ratio may work its way lower down below 20 where I believe a ratio of 15 ounces of silver could buy one ounce of gold when its all said and down. This would be pretty close to the normal ratio that had been in place for many hundreds of years. If this is the case then the ratio is showing that silver will be the place to be invested over the coming years.

Below is the gold to silver ratio chart, that I built several years ago, comparing the ratio to the SPX. This chart shows the clear implications of how the stock markets behave when silver is outperforming gold. As silver is used both as a commodity and a precious metal it plays a double role. When the stock market is in rally mode that puts pressure on silver as a commodity because it is used in alot of different technologies. So when we see the stock market going up we generally see the gold to silver ratio falling. As you can see from the 2008 stock market crash low silver has been outperforming gold, for the most part, as the stock market started a new bull market. You can also see when the ratio bottomed during our latest correction last year, and had a little counter trend rally, the SPX formed it’s correction low. What we want to see going forward is for the ratio to keep falling and the stock markets to go higher. If the stock markets are indeed embarking on a bull market run the gold to silver ratio should fall pretty low. Maybe all the way to the historic average around 15 oz silver to 1 oz of gold. This ratio chart will give us something to watch as the bull market unfolds for the stock markets and for silver. Note how the gold to silver ratio broke the bottom support rail during silver’s near parabolic move up to 50. Now that this long term support rail has been broken it should now be easier for the ratio to break below the bottom support rail and continue lower.

I hope this answers your question on who will be leading this next leg up in the precious metals. If the gold to silver ratio keeps falling the stock markets will continue to rise and silver will outperform gold, for the most part, going forward… All the best Sir riscott63…Rambus

Its now time to take the model portfolio out of cash. We will start with the 10 stocks we like on the side bar. I will be adding more stocks as they show good chart patterns. So the model portfolio is now in affect until further notice. Been waiting for a long time to get it going. I really hope this is the start of the next impulse leg higher that will take many months to mature.

USLV is a fairly new etf for silver. It is 3 X long silver which makes it a very volatile trading vehicle which can be good or bad. So far the trade has been working very well. As I showed you on the previous post for SLV this new etf seems to be tracking SLV pretty good. You can see the bullish rising wedge and the backtest this morning to the top rail. I have the price objectives for both the inverse H&S and the bullish rising wedge shown in brown. Both price objectives are very close to each other which is what I like to see. Both patterns confirming a similar price target. We are entering an area that was a congestion zone on the way down that was a bear flag. What I would like to see happen is that we reach our price targets around the 47 area and even possibly as high as 51 which is the top of the congestion zone. Then a chopping move between say 51 or where ever the high turns out to be and a low somewhere around the first resistance zone at 41 marked on the chart below. What this would do is create a right shoulder of a much bigger inverse H&S bottom. But for right now we’ll just focus on getting up to the top of the congestion zone, bear flag, made on the way down.

USLV breakout and backtest to the bullish rising wedge.

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Dollar Long Term