After lagging behind gold's performance, PM stocks are finally rallying, driven by strong chart patterns. The breakout from a 2 1/2-year inverse head-and-shoulders bottom on the CDNX and the completion of a major consolidation pattern in the PM complex suggest a long and powerful bull move.
The precious metals sector (PM) has been lagging behind gold's impressive performance for some time. However, a significant shift has occurred since January 2023, with PM stocks finally demonstrating a willingness to participate in the upward momentum. This unexpected rally has surprised many investors, but chart patterns suggest that it could be the beginning of a long and powerful bull move.
One area of particular interest is the performance of small and micro-cap PM stocks, many of which are traded on the CDNX (Canadian Venture Composite Index). After a lengthy period of consolidation, the CDNX has finally broken out from a 2 1/2-year inverse head-and-shoulders (H&S) bottom. This breakout is significant for investors in this sector, signifying a potential shift in momentum. Looking at the broader picture, the CDNX's recent reversal pattern fits within a larger historical context, demonstrating the significance of this breakout. The PM stock complex has historically formed two major consolidation patterns: the 2016 bullish falling wedge and the 2020 bullish expanding falling wedge. These patterns have contributed to the formation of a parallel uptrend channel within the 2000 secular bull market uptrend channel. The current breakout and backtest to the top rail of the 2020 bullish expanding falling wedge suggest a powerful rally towards the center dashed midline, potentially leading to another consolidation pattern. The principles of Chartology, which analyzes chart patterns to predict future price movements, indicate that large chart patterns often lead to significant price movements. The breakout from the 2011 triangle consolidation patterns, along with gold's consistent upward movement since breaking out from its recent triangle consolidation pattern, reinforces this notion. While the possibility of these large consolidation patterns playing out might seem improbable, the strong impulse moves between each consolidation pattern, coupled with the current bullish trends, suggest a high probability. Gold has been exhibiting a strong upward trajectory since the October 2023 low, forming three consolidation patterns along the way. Each consolidation pattern has been followed by a strong impulse move, indicating a sustained upward trend. The same pattern can be observed in gold's price action since the 2018 low. Three distinct blue consolidation patterns preceded the August 2020 high, suggesting a potential for similar price action in the future. The recent completion of gold's third consolidation pattern, followed by a strong impulse move, further strengthens this outlook.
PM Stocks Precious Metals Bull Market Chart Patterns CDNX Investing
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