The HUI along with some of the other precious metals stock indexes are approaching some overhead resistance. The first chart I want to show you is a 4 month daily look that shows the HUI hitting the top horizontal resistance zone at 460 today. Initially you would expect a failure to occur right here as the bears see this as a place to go short or sell their positions. If the HUI is truly starting a new impulse leg higher its normal to see some backing and filling at overhead resistance. Whats important though is that after a few days or so the HUI rallies backup to the overhead resistance again attacking the bears. At some point, if this is a new impulse leg higher is for real, the bears will run out of ammunition and the bulls will overwhelm them in a big way and there will be a vacuum just above the horizontal resistance zone. The bulls will then run up to the next resistance zone where the same thing will happen again until there is no more overhead resistance. At that point the price action can move up more freely until the bears can mount another attack at higher prices.

The next  chart for the HUI shows the big 5 point blue bearish falling wedge that has been in place for close to a year now. As you can see on the chart below the HUI hit the bottom blue rail this morning at 460 and has bounced off. This tells us that bottom blue rail is HOT and the bears are in control for the time being. A break above that bottom blue rail will have the bears running for cover looking for the next logical place to put up some resistance which will probably be the top blue rail of the bearish falling wedge around 480 or so.

This last chart I want to show you is a one year and 3 month look at several of the big patterns that have formed over that period of time. The first pattern is the bearish falling wedge that I showed you on the chart above, in blue. Another important chart pattern is the downtrend channel that has been in play for the whole move down and the last pattern is the little red rectangle that formed right on the bottom blue rail of the blue falling wedge. You can see on the chart below how the bottom rail of the red rectangle has held resistance since the price action broke below it in April of this year. The red arrow shows you where we have a confluence of trendlines all intersecting at roughly the 465 area. This is why today’s action is alittle disappointing if one doesn’t understand how support and resistance works. This is perfectly normal behavior being displayed by the HUI. Keep in mind that once all this overhead resistance is taken out to the upside it will then reverse it’s role and act as support on any decline.

Tonight I would like to get you caught up on a few charts of gold I haven’t shown in awhile. As you well know we are finally getting some serious strength in gold that is moving the price action up and into some critically important resistance points around the 1660 area. Lets start with a daily gold chart so you can get a good overall picture of where we are and where we are likely to be going over the near to medium term.

The gold chart below shows the most important pattern that gold has been trapped in since last September when it made it’s initial break off the all time high at 1920. That first bottom, setup the first reversal point in the 265 point rectangle pattern, point #1. I’ve labeled the reversal points within the big rectangle with red numbers. The fifth reversal point was most important because it represented either a rectangle consolidation pattern to the downside or the 5th reversal point was making the rectangle a reversal pattern to the upside. Two very different outcomes. As of right now we can rule out the rectangle as a consolidation pattern to the downside and say its a 5 point rectangle reversal pattern to the upside. Until something changes that scenario this is the way we have to trade now.

There are still several more important things to look at, on the daily chart above, that helps let us know where we are relative to the last year of trading. On the shorter term look the 5 point red triangle reversal pattern is the most important chart pattern in play right now. As you can see on the chart above gold finally broke out of the 5 point morphing triangle yesterday with some nice follow through today.  We are now approaching two critical resistance points and they both intersect at roughly the1660 area. The first one is the horizontal thin dashed black center rail of the big rectangle and the other one is the 300 dma which came in today at 160.  After alittle backing and filling around the1660 area the red 5 point triangle strongly suggests gold in going up to test the top of the rectangle at 1795. For right now 1660 is the area to watch.

The weekly chart below shows again why the 1660 area might offer up some resistance before the gold price can work its way higher, green circle. We have the 65 week moving average that is now at 1657. Gold is also approaching the top rail of the downtrend channel that seemed so far away just a week or two  ago.  If gold can takeout the top black downtrend rail,  that will nullify another leg down within the downtrend channel and helps build a stronger case for the triangle consolidation pattern.

Another weekly chart shows the potential triangle forming that maybe coming to an end if gold can takeout the top blue rail. If you look at the other blue consolidation patterns you can see our current triangle looks very similar in time and price. So from that perspective our current blue triangle could be a mature pattern. Time will let us know if that is the case.

The last chart I would like to show you is a 30 year look at gold. When looking at the bull market that stared in 2000 our latest consolidation pattern looks like it fits right in as just another consolidation pattern in the ever growing bull market.

We know from looking at the charts above that the 1660 area represents some key resistance points gold will have to overcome to enter it’s next impulse leg higher. With the breakout of the 5 point triangle reversal pattern gold answered a few very important questions for us. Most importantly is that the bottom at 1530 is a very key support and will likely hold into the future. Also the breakout from the 5 point triangle strongly suggests that gold at a minimum is headed back up to the top of the rectangle at 1795. So now we wait and see how gold trades around the all important resistance area at 1660.   All the best…Rambus

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GDX is the first PM stock index to reach it’s first important resistance zone at the bottom blue rail of the 5 point bearish falling wedge. A pause to refresh right here should be expected. With the US dollar breaking down from it’s top formation the odds are very good that the precious metals stock indexes should take out both of the overhead resistance rail on the 5 point bearish falling wedge. A close above the top blue rail will be a big deal when it happens. We are also closing the gap that was made on the open this morning.

DAG is a 2 X agricultural  etf that does a pretty good job tracking the grains. Several weeks ago I showed you this chart of DAG when I wrote about the risk off trade coming back. The red triangle has morphed alittle bit since then but with today’s action it looks like a clean breakout with a nice gap. I’m viewing the red triangle as a halfway pattern. At the top of the chart are two price objectives using two different measuring techniques. Notice the move off the bottom blue arrow to the top of the red triangle. This type of pattern should produce a move equal to the move off the bottom blue arrow at the bottom of the chart to the blue arrow at the top of the red triangle. The near vertical price action is called a flag pole with the red triangle forming at the halfway point. The MACD, at the bottom of the chart is getting ready to crossover and the RSI at the top of the chart has hit 50, red arrow. Alot of times when a stock is in a rally mode, and then has a correction, the RSI will only correct back down to the 50 area that will signal the correction is completing. Instruction on chart below.