Poster’s Paradise

As some of you know I was looking for the old bullish rising wedge halfway pattern to break up and out of its consolidation. Instead we had a false breakout to the upside followed be a strong decline thru the bottom rail of that bullish rising wedge which was signaling the rising wedge was going to be negative for PM stocks. The breakdown looked like it was going to be hard and fast but in reality we have been chopping around below the bottom rail making little headway to the downside. Usually when you breakdown from this type of pattern the decline gets underway fairly quickly with maybe just 1 pullback to the underside of the bottom rail before the down move gets going in earnest. I maybe out in left field on this one, as I have been whipped sawed with the breakdown of the rising wedge pattern, but what I think is happening right now is that the old bullish rising wedge pattern has morphed slightly, into a bullish rising channel or flag halfway pattern. I will explain the halfway patterns in more detail with the charts below.
First, lets start with original bullish rising wedge pattern and what has happened since the breakdown. Today marks the 5th week since the breakdown and as you can see we have made little progress to the downside.

If you have done any amount of charting you know that patterns can morph into something different. I’m still holding out hope that our bullish rising wedge has morphed into a bullish rising channel or flag pattern. I have moved the top rail down to the bottom to create a parallel up channel or flag. You can see we still have our 4 reversal points, within the up sloping flag which is needed to make the pattern authentic.

Now that we have established the possibility for a bullish rising flag halfway pattern, lets see how it fits into the bigger picture as a halfway consolidation pattern. First, a halfway pattern has to fall halfway between two points in the uptrend channel. In our current case the August 2007 low, which I’m sure most of you remember, and the Nov. high created the first leg up, first blue and red arrows. Next comes our current consolidation or bullish rising flag halfway pattern. If this is truly a halfway pattern we should rally out of the top rail of the bullish rising flag the same distance as the August 2007 low to the Nov. high. The way I measure these types of patterns is shown by the red and blue arrows for each leg up.

As you can see on the chart above this halfway pattern should measure out to about 680 on the HUI. This is where it starts to get interesting. You may have noticed the big blue triangle in the middle of the chart, which was our last big consolidation pattern. Again, these types of consolidation patterns tend to be halfway patterns between impulse legs. The blue and red circles measure out the triangle halfway pattern with an interesting result. Our smaller bullish rising flag pattern measured out to 680 where as our much bigger triangle halfway pattern measures out to 695 very close in price objectives. Its strange sometimes how markets move in equal amounts but that is the nature of the beast.

The last rally leg, first blue and red circles, took exactly 1 year to run, May 05 to May 06. If this current rally leg that started in August of 06 lasts one year that means we should see some type of top in August of this year.
One more price objective I would like to throw in here is that of my base template which has called every intermediate top to within a few points. It measures out just alittle higher to 720 which some of you folks might remember. Below is a finished look at these 2 very important halfway patterns and their price and time objectives. The bottom rail on the the bullish rising channel or flag pattern is key to this whole post. If we takeout the bottom rail all bets are off and if we can hold above the bottom rail all bets are on.

Below is one last chart of the XAU and it’s potential halfway pattern.
All the best…Rambus