Update the AMEX Gold BUGS Index

Sorry for the delay in posting this article…the amount of time for deducing the Elliott Wave count has occupied an inordinate amount of time. The present behaviour of the HUI leaves only the presented Elliott Wave count as being plausible at the moment.

There are many undercurrents in the market at present and often how they blend to create sudden vortexes or expansions in strength of flow are impossible to predict. If the HUI were to take out 450 in the coming correction, then I would have to revise my thinking…however, analysis on gold, and the broad stock market indices support the presented ideas of this article (at least for the moment). With today's analysis, keep in mind that risk capital should have extremely tight stops to preserve money. As mentioned for the past 5 months or so, any move above 505 for two consecutive closes places termination of the next upward move somewhere between 900 to 1000. One important thing to consider is that stock dividend yields are outperforming bonds for the first time in awhile…generally under such circumstances, smart money rotates into stocks, which provides a hand to the market. Under such conditions, expect the stock market to exhibit strength.

The daily chart of the HUI is shown below, with upper Bollinger bands rising above the index, suggestive that a top is looming. The lower 55 MA Bollinger band is still declining and when it curls up, it will confirm that a top was put in place. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K beneath the %D in 1 and above the %D in 2 and 3. Notice that the %K in stochastic 2 appears to be rolling over, suggestive that a top is looming.
Figure 1


The weekly chart of the HUI is shown below, with upper Bollinger bands in close proximity to the index. Lower Bollinger bands continue to rise…the lower 55 MA Bollinger band starting to curl down would suggest the start of a new upward trend. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K above the %D in all three instances. Extrapolation of the trend suggests continued sideways to upside momentum for the mid-term.

Figure 2


The monthly chart of the HUI is shown below, with upper Bollinger bands above the index. Recently the lower 21 MA Bollinger band crossed above the 34 MA BB, indicating how oversold the market conditions the 2008 spike lows were. Full stochastics 1, 2 and 3 are shown below, with the %K above the %D in all three instances. The monthly chart clearly indicates a bullish upward trend for the HUI, potentially lasting for12-24 months…only time will tell, but the long-term oscillators are bullish at present.

Figure 3


This chart was included to show why I ruled out the present move up as the start of wave 1 of some Degree. Note that red dots indicate waves 1 through 5. The upper channel has wave 1 and 3 touch points, while the lower channel line has wave 2 and 4 touch points. Generally, impulsive waves do not channel very well, but this chart illustrates a near perfect channel…one potential red flag. There always must be one wave extended in 2/3 of time, price or complexity and wave 3 is extended in time and price so this adds some merit to a potential impulsive pattern. The BIG RED flag is that the completed wave 5 (which has a monowave appearance) should have broken the 2-4 trend line in an equivalent amount of time or less that wave 5 took to complete. This observation negated the chance of the start of a new impulsive wave, suggesting that the Elliott Wave count presented in Figure 5 likely is still developing.

Figure 4


The mid-term Elliott Wave count of the HUI is shown below, with either wave (D) complete or nearing or wave (E) just underway. There are many touch points with the 500 level with a rising trend beneath,strongly suggestive that further upside potential exists. This has wave [B] taking form of a complex correction, with a diametric triangle (bow tie formation (notice how each wave have similar levels of complexity and time, but differ in price) and a flat separated by an X-wave. The X-wave does not consume more time than either intervening wave, so it does fit the count. There were potentially other ways to count the HUI before, but persistence for support and a narrow trading range ruled them out. The thought is that the 2008 count represented wave f, with wave g underway at present (Yes, I am aware that wave g will be shorter in time than wave f and there may be a better way to label at this level (cycle Degree). Wave g had a very quick decline in wave [A] with a rebound in wave [B] to setup for a potential flat structure. Wave [C] at present represents a terminal impulse that has extremely bullish upside implications it happens. If this count is true, then the HUI is likely to go sideways until Novemberish to complete wave (E) before rising sharply and rapidly to the 900 to 1000 area. The trading range for wave (E) should reside between the 460-500 level between now and early to mid-November.

Figure 5


The long-term Elliott Wave count of the HUI is shown below, with wave f complete and wave g underway at present. This might appear to be an overly bullish count, but examination of the previous data does support such a notion. As noted before, a move beneath 450 would strongly suggest that downside was in the cards. As prior analysis of the S&P 500 index suggests, a top is not likely due until February/March 2011, with a potential top not due into 2012 (the latter can not be determined at this point in time, but should not be ruled out. Waves [A] and [C] at present have their time duplicated to overlap wave [B]….wave [C] will take more time if it extends into the November time frame.

Figure 6


Just that there is some further proof that a short-term top is likely due, the BPGDM is presented below (HUI shown in green). Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K beneath the %D in 1 and above the %D in 2 and 3. The BPGDM closed at the 80 level, which historically is nearing the level of formal tops. A top can not be confirmed at present and wave [D] could still be forming, so it might take a few more days next week until a top is put in place (Wednesday to Friday).
Figure 7


That is all for today… Back tomorrow AM with an update of oil, natural gas and the XOI.

Have a great day.
David Petch

September 19th, 2010

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