Great weekend report by Rambus. I would like to add on a few observations and my interpretations as to where we go from here. Bottom line is I see us still in a bear market, in the initial moves of a phase III that is levitating itself in a complex backtest to the previous phase II consolidation. Soon it should commence with its phase III decline, however it is my opinion that first we undergo a rally one last time before the impulse down commences.

Seems Rambus is neutral at this critical juncture, whereas I am favoring the short term (4-6 weeks) bullish rally path. A quick review of the big picture here. Note the GDX chart below shows a breakdown of the phase II post POR consolidation pattern which lasted 17 months. This breakdown was our entry into phase III. Since this began we have been in a complex pattern of backtest with limited follow through to the downside. The Gold chart shows only a flirting with the phase III zone. So the stocks have led the metal once again as is usual. It is my expectation that when this BT process is complete we will undergo a full phase III to the depicted price objectives, but first my indicators speak to me that we will have one more upside teaser.

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Note Rambus’s two charts below show the set-up for this same outcome. The H&S pattern we are in now is the complex BT of the initial phase III entry I believe.

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My technical argument for a rally here and now before a continued phase III decline is depicted by my indicators. Note the weekly HUI stochastics are positioned for a uptrend, my PWMI shows a series of W’s and the 4-H club all shows positive indictors.

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Also the beginning of this rally was signaled by the HUI leading the metal in a divergent bottom:


On a more fundemental basis one can see that the overall market has been driven by the strength of the USD. This strength has in fact defined the landscape over the past year. I have posted this USD chart before and it shows how it has spent the last few months grinding through upside resistance. It appeared it had finally made it through and would resume its run up to its objective, but maybe it has now exhuasted itself. We will see, however if it does take a breather one can see that it should fuel the metals and commmodities for a while. So a weaker or pausing USD may drive gold higher for a short while, but ultimately when the USD continues its move higher as the senior currency in a post bubble contraction it will dominate the landscape driving the metals lower.

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The Juniors in their own little private phase III- Can they go even lower? Of course, however its my opinion that the abuse has run its course. Phase III is all about seeking liquidity and there is not much liquidity to seek in this group. Note the massive rush of volume in GDXJ we have witnessed. It is now on a decline. This is a good sign to me as it indicated we are moving throught the phase III process. So I think the bulk of the agony will be focused on the majors in the final phase. Note the GDXJ:GDX ratio chart below. One can see the impulse decline of the juniors relative to the majors and now its kind of flatlined. All part of the process I think.


So what is going to drive the next bull market that we have all been waiting for? Economics and a good P&L sheet that’s what. I think the first leg of the bull (2001-2011) was driven by the narative of evil CBs printing money and gold goes to the moon- Alice. Well something happened on the way to the world collapse and it was deflation. That narative flamed out and we have had hell to pay in terms of a classic bear market caused by deflation and uneconomic over development in the PM sector. Once the bear finishes cleaning this all up the next bull will be driven by classic depresion economics. Lower input cost and higher “real” gold prices. Its coming folks…be patient and get positioned near the bottom.. Here is a chart of gold:CRB. Not a perfect measurement of this equation but something to start with. Note we bottomed last year. It takes a while for all this to flow to the bottom line, but I think it has begun. We could retest the bottom here, but it should resume its advance and eventually fuel the bull.


TMF update- Looks like I missed out on my reentry trying to get greedy and get in at a lower price. I think TMF is now off to the races and the optimal case was the one that won out


Depression Chronicles: I am sure you didn’t miss the report on the freefall of credit applications and the rejection numbers spiking. Add that anecdotal factoid to the price of lumber and maybe something is up. Talk about a clean chart:



Capitulation -One last word. Phase III is all about capitulation of course so its fair to ask after an 85-90% decline haven’t we had it? I would say …sort of. We have had capitulation in the Juniors, there is no doubt about that. One can see it in the volume. We had partial capitulation in the majors last October, however not complete. What we have not yet seen is the 4-10 days of liqudity evaporating in the majors. We have had single day bouts of this with the Goldman raid, the June 2013 bottom and the slam down last fall. But not to the extreme as previous bear markets in the past. We have also not had issuer capitulation or comical selling. These 2 other forms of capitulation which have existed in past Uber bears have not yet showed up. So we wait knowing that these are anecdotal signs that we have not yet seen all the classic elements of a bottom. There is no rule that says they must come, however they have in the past and we deal with probabilities

See You after the Flush



As an adjunct to Rambus’s weekend report I thought I would give some historical context to PM bear markets. My position is we are in the beginning of phase III, but have not yet gone through the powerful downward liquidation impulse. A review of the 5 year (57 month) bear market of the late 90’s is instructive. It followed all the classic phases and mileposts that I have defined for severe bear markets. A review of the model is as follows

Phase I topping pattern with pattern violation

Phase II initial recovery followed by long slide

Point of recognition (POR) combined with crash

Major prolonged post POR consolidation

Consolidation violated ending phase II

Phase III drive to liquidation (no one gets out alive)

The late 90s cyclical bear was a particularly nasty one- which ended the 20 year secular bear. It lasted 57 months and declined 77%. Today our current bear is 43 months old and has declined 75% (GDM). The juniors have declined even more. One can see we have traveled the same road since the 2011 top as we traveled in the 96-2000 affair. It is instructive to note that the bottom in 2000 was a V bottom and not a consolidation bottom as we are currently in. Phase III lasted 8 months. Here is a view of this model


When compared with our current bear this shows all the same model components. We are just waiting for phase III to complete