I’m going to show you two views of the same chart, one a bar chart and one a line chart. Each will show you different parts of the same story, that from my perspective, is the story I’m following. I have been posting these two charts since April of this year trying to show the different possibilities of it’s outcome, which at one point early on, could have been a bullish rising wedge instead of our current bearish rising wedge. But the bullish rising wedge wasn’t to be as the first bar chart will show. This is a 5 point reversal pattern complete with a H&S’s top at the end of it’s formation. What makes this pattern so bearish is the way it broke down from the H&S top. It basically took out the neckline and the bottom rail of the rising wedge in one felled swoop. No playing around. And then the most important piece of the puzzle was put into place with the perfect backtest to the underside of the bottom rail of the wedge. Classic TA. It just doesn’t get any better than that from my point of view. This is the main reason I’ve been so bearish on the HUI index. The reason we didn’t get a backtest of the H&S neckline is because the bottom rail of the rising wedge prevented the counter trend rally from going any higher at which point we created a bear flag halfway pattern.
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Next, the line chart of the same pattern. This view shows you how the neckline was formed for the H&S top. All the tops in the preceding formation created an up slopping rail that was resistance when we were in the previous consolidation and once we broke above that up slopping rail it then became support as it formed the neckline of our beloved H&S top pattern that nobody and I mean nobody wanted to recognize. Even to this day, as it sticks out like a sore thumb on the chart, nobody is giving it any credit for the pain it has cause every gold bug that remained long their shares. Notice how we sliced thru both the neckline and the bottom rail of the wedge, again with the power of 10 million butterfly sneezes, to trap everyone that held above those two important rails. That brings us to the 4th reversal point on the chart, the 4 bottoms of the previous consolidation pattern. Again, from my perspective, those bottoms will now act as resistance on any rally attempt. There are alot of folks that bought at those bottoms and now that we are below that level they will be looking to get out even if the chance arrives. This is how support and resistance works in the markets Its not the cretin but just plain old human nature to want to just get out even.
A bearish rising wedge measures to the beginning of the formation, so in this case the 170 area, the bottom of a previous consolidation area should act as strong support for a place to begin building a base in which we can then regroup and get ready for the next rally phase.
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We are in an area where alot of folks are going to make some bad decisions trying to be the first one to pick “THE” bottom. We still have a roaring fire going to the downside. The smoke hasn’t even cleared yet and everyone is wanting to jump in, to be the first to say, I bought the bottom. It would be nice to be able to make that statement but very few will actually be able to say that.
Peace and all the best to those that have had to endure this decline…Rambus