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Robert J. Cote, Jr.
Thirdeyeopentrades
May 19, 2006

We don't know what the $XAU will do but, based upon our years of experience watching and trading in this market, we are allowed to speculate what we think might be going on beneath the surface. The gold shares got clocked hard recently and it's about halfway over we think. By halfway over, we are talking about the price destruction. It may take a while for another rally to set up. Here's what we see.

The index has been stair stepping its way higher and along the way pulling back slightly more than 61.8%. As you can see, there's a tiny gap we suspect might fill Friday. We think the sell off is part of an ABC down into the test area shown.

When one focuses on the behavior of the last pullback from February into March you'll note a positive divergence developed between the price and the MACD histogram (those bars at the bottom of the chart that are clearly indicated for you).

It would be nice to see one of those develop again in the month ahead as we often find those setups to be early buy signals. Then we wait for the price to break through the top of the formation and buy.

But, we're not here to predict. We're here to plan. Get a list ready of the strongest stocks that appear in this latest ABC move down. Then you'll want to focus on what sell volume comes in as we approach the test area.

May 19, 2006
Robert J. Cote, Jr.

email: thirdeyeopentrades@yahoo.com
website: www.thirdeyeopentrades.com

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