Markets Update… Precious Metals Yellow Flag

Most of the time during a bull market the short, intermediate, and long-term charts are pretty much in sync even during a consolidation phase. Consolidation patterns are needed to bring the overbought condition back to what is normal for a bull market. Consolidation patterns are notorious for wild swings both up and down to shake out as many investors as possible before the next impulse move can begin again.

What you don’t want to see is a topping pattern such as a double top or H&S top as they are reversal patterns. It is normal to see SMALL double tops – bottoms or H&S reversal patterns at the reversal points in a big consolidation pattern, but you don’t want to see a big H&S top as a stand-alone pattern especially after a strong impulse move.

Let’s start with the daily combo chart for the PM complex which shows the potential H&S bottom forming at the last reversal point in the August trading range. To be honest I don’t like today’s price action on this daily PM combo chart even though GLD, SLV, GDXJ, XGD.to, and SIL are still holding support on the backtest to their necklines today. The other PM stock indexes have broken down below their respective necklines which is a warning sign the potential H&S bottoms may be failing. So far I view today’s price action as a yellow flag or warning sign to watch this area very closely.

There is another daily combo chart for the PM complex I’ve not shown you before as it needed more work and still does before it shows its possible hand. If you’ve been following me for any length of time you know I don’t have any problems changing my mind if the charts are morphing into something different. Back in 2008, I was booed off the stage when I strongly suggested the HUI was putting in an H&S top at the height of the bull market back then. No one and I means no one wanted to hear it including myself, but I have no control over the price action and had to take what the markets give me to work with.

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