Precious Metals: Who’s in Charge?

Precious Metals: Who’s in Charge?

By Rambus

In this Weekend Report I’m going to update some charts I posted back in November of last year before the PM complex bottomed in late December. What I was showing back in November were many of the H&S tops that were breaking down in an impulse leg to the downside. The lows in December of last year is where they bottomed and began a counter trend rally that took prices back up to the February 2017 highs. From a Chartology perspective all we’ve had so far was a backtest to some of the necklines at this point in time. Maybe it will end up being more, but for now the backtests are holding resistance.

I would like to start with one of the more important ratio charts which compares Gold to the US dollar. During the bull market years this ratio chart built out a parallel uptrend channel that was a thing of beauty. In 2000 this ratio started to build out an inverse H&S bottom which reversed the bear market to a bull market. For the next 11 years this ratio built out one consolidation pattern on top of the next, which is bull market action. Even the crash in 2008 built out a H&S consolidation pattern which launched the rest of the bull market into the 2011 high.

The bottom rail of the major uptrend channel was broken to the downside in April of 2013 which was the defining point on the chart, which reversed the bull market to a bear market. Note the H&S top that formed just below the top rail of the downtrend line in 2016. That is the same H&S top I showed you back in November that had already broken down. You can see the backtest to the underside of the neckline which so far has been the counter trend rally out of the December 2016 low. So from a Chartology perspective nothing has broken yet in regards to the bear market downtrend channel and the backtest to the neckline.

This next chart focuses in on the parallel bear market downtrend channel that began to build out in 2011 and the consolidation patterns that have formed. If the bulls can take out the top rail of the bear market downtrend channel they will be speaking to us loud and clear and I will pay attention to what they’re saying. Until then the bears are in charge.

This next ratio chart I compared the HUI to the SPX to see which one was stronger. After breaking down below neckline #2 this ratio found support at the late December 2016 low and built out the blue bearish rising wedge as the backtest to neckline #2. Note the double H&S top that formed back in 2015 which led to the double bottom low. A stock does one of three things. First, it’s either building out a consolidation pattern, a reversal pattern or is in an impulse move. The double bottom in 2016 reversed the downtrend up to that point. The H&S top in 2016 reversed that impulse leg up. What we don’t have yet is a reversal pattern in place to reverse this current leg down in this ratio.

Below is a long term weekly look at the HUI:SPX ratio which puts the H&S top we just looked at on the chart above in perspective. This long term chart also shows you which index would have been a better place to have invested over the last five years or so. When this ratio is falling the HUI is under preforming the SPX.

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Gold Seek

Various authors presenting analysis and commentary on the precious metals, economy and precious metals mining markets.