I know it may have come as a shock to some of you on why I raised some capital by selling a few PM stocks today. Whenever you see a false breakout of any chart pattern and the price action trades below the bottom rail of the original pattern that can setup a bearish situation. Its like a head fake. The stock forms what looks like a great breakout and maybe even accompanied by a breakout gap. Everything looks fine. Then you get the backtest to confirm the breakout. Sometimes we can see several days of backtesting waiting for the breakout move to begin.

The first sign of trouble is when you see the price action trade below the breakout point or below the top rail in this case the bullish rising wedge. Many times the trade can still be saved if the bottom rail of the rising wedge ends up holding support. Once the bottom rail gives way then red flags start flying that something is amise. Many times when you see a false breakout of a chart pattern you can see a strong move in the opposite direction. Again, its like a head fake that gets you moving in the wrong direction before the real move takes place.

Lets start by looking at a daily chart for AU which built out a very nice looking rising wedge formation complete with a breakout gap above the top rail. AU was one of the leaders and it looked like it was showing the way higher for the PM stocks but after the reversal bar at the top of the chart AU declined back into the rising wedge negating the breakout. All was not lost yet as the bottom rail of the falling wedge could still provide support and save the pattern. Once the bottom rail was lost that put me on high alert to watch the price action very carefully for more deterioration. Monday morning AU opened with a downside gap and today the price action closed below the 50 day ema which strongly suggested to me it was time to get out of this trade.

All is not lost yet however as AU could be in the process of building out some type of consolidation pattern with the first reversal point being the false breakout high. What we need to see next is for a low that would create the second reversal point, another rally followed by one more reversal to the downside to create some type of four point consolidation pattern. Right now there is no way to know what kind of consolidation pattern may form. One important aspect of this daily chart is the one year H&S bottom which should support a much bigger rally than what weve seen so far. As you can see the rally out of the August low was very strong so now is as good a time as any to see AU consolidate those gains

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