As a result I sold all of my PM long positions I picked up at the bottom on Friday. If you have read my analysis on Bear Market crash #4 of last week it was the case for buying the bottom of last Friday and ride it for a bounce. We had finished the crash sequence which I had detailed, We were in day #9 and were down 21%. The crash had fulfilled all the normal modeling that I had outlined. It was worth a stab at a bounce off the bottom for either a short squeeze or the start of a BMR, so I took the trade.

I don’t like what we are seeing here. According to past models we should be getting some traction by now and we are not. One could argue that we are simply in a retest of the Friday low and then we could rally, after all, the COT numbers have never been more bullish. It might work out that way, however the action of the past 4 days looks very sickly to me. One may say I am acting on my instincts and preferred to rapidly reverse the trade and go full defensive. Recall again…we are in a bear market.

Today Rambus posted the chart of the GDX and posited that it might be an expanding triangle half way pattern. I see that possibility myself and we may be in “THE BIG ONE”. That’s right THE-BIG-ONE -the phase III annihilation crash. Last weeks action may have been the first half.

Note my charts below. They are 30 min charts and all the indexes are tracing out a diamond formation. We have seen this before. The Phase II post POR consolidation was a huge 18 month diamond. This markets charactor may be replicating in fractal forms of diamond consolidations.

sc-699 sc-700 sc-701sc-702

At first it appeared the market was attempting to establish an inverse H&S which it could base off of for a sustained rally, but in the markets deceptive way these have morphed into what could be more accurately described as a downwardly slanted diamond. Just like we had for the bears mid point consolidation below.

sc-703

The GDXJ is the only index one could argue potential bullishness, but it also has put in the little bearish H&S on the right half. Bottom line I am not willing to risk the small profits I still had waiting for this pattern to resolve on the upside. Especially now that the little squiggle has broken through those diamonds. These are thin reeds to make trading decisions on, however I can see the possibility that this one week sideways move is in fact just a halfway pattern down to GDX -10.0

Recall Phase III are liquidity events and “no one gets out alive”. I have learned to respect the market action of a phase III and given that context chose to go back on the defensive.

At todays conference an amature investor asked, how will we know when we have has a capitulation? The moderator’s answer was…Believe me, you will know it when you see it, you wont have to ask me.

If we now drop in crash form to GDX 10.0 I would think everyone would know it!