This update is primarily going to deal with the AMEX Gold BUGS Index. All commodities were essentially in a BEAR MARKET for 20 years. The forecast in the behavior of the HUI is easier compared to the S&P or US dollar for that reason. The S&P 500 Index is mirroring the DOW which has been in an up trend since 1760 (back data extrapolation involved); the longer the wave pattern the more difficult it is to assess the thought wave structure that will follow.
The precious metals such as
silver are having there above ground sources continuously raided
to suppress the metal price. According to silver Guru David Morgan
(writer of the Silver-Investor Newsletter), above ground silver
supplies will be very tight in the coming year or so. Silver
primarily is an industrial metal (most is not recovered from
industrial processes) with most being supplied as a result of
secondary mining (copper, zinc, lead). The amount of silver globally
consumed is growing on a yearly basis, with production trickling.
Once the above ground supply has been exhausted, the open market
price will dictate how high the price gets. Silver historically
has played an important role in established currencies by making
up a certain percentage of issued coinage. England removed silver
from its coinage in the early 40's and is strictly composed of
base metals today, as are most global currencies.
The 50 day MA is currently offering support to the index, while the 155 and 200 day MA's are nearing convergence. The shorter term stochastics shown below are bearish, suggesting further weakness or consolidation in the HUI. It should be noted that the %K could rise above the %D quickly, based upon the wave pattern present. We will present this chart daily this week to track the changes in the stochastics.
Below is the weekly HUI chart. The Bollinger bands are still converging. The up trend on the weekly chart will be confirmed when the lower 55 MA Bollinger band curls down. This indicator lags the trend by 6-8 weeks. The lower 21 MA BB curling down is suggestive we are nearing the start of the next up leg of the corrective pattern. The stochastics below have been bullish for one month and are likely to continue rising to the top of the 70% channel line. This is around 2-3 months from now.
Below is the short term Elliott wave count of the AMEX Gold BUGS Index (HUI). The triangle has been forming as hypothesized back near the end of May (the severity of the decline and internal wave structure of waves [a] and [b] suggested this). There are many Fibonacci relationships observed between the internal waves of the triangle. Noted in the chart, wave [e] retraced ~61.8% of wave [d] and ~38.2% of wave [a]. There are many other Fib relationships not noted. A contracting triangle SHOULD have many Fib relationships present to consider it a valid pattern. The triangle based upon the wave structure should have a non-limiting triangle classification. This is confirmed by the wave structure currently running to near the apex of the triangle. There are two preferred counts that have the same outcome, just in a different time frame. The light green line has the HUI breaking out from the triangle, testing it, and then advancing minimally to 233 before any correction of significance. The darker green line has the same target with a possible higher target, with a sub-triangle forming in wave [e]. This could extend for another 1-2 weeks. The internal wave structure of each wave in the triangle are corrective..there is no visible or accurate way to label them as impulsive segements in their entireity.
Below is the Elliott wave chart of the HUI showing the entire corrective sequence since December 2002. The end of the triangle will complete wave [W]. which will represent 1/3 of the expected correction. Refer to Figure 7 for the "YOU ARE HERE" diagram to see the expected move. The entire pattern. The pattern for wave [W] is a complex correction with a flat-X-triangle structure. As mentioned, the minimal move will be to 233, prior to a slight pullback, and a continuation of the move up to 280-320.
The longer term Elliott wave chart of the HUI is presented below. Each successive wave of [I] was longer, with the log scale corrections diminishing as the pattern advances. The green line shows the suspected pattern that will develop as wave [W].II completes. An alternate count not presented would have the HUI rising to 230, and declining to 150-160 to form wave [W}. Non-limiting triangles such as the current one we are in often mark the end point of a certain degree pattern. This is our Sherlock Holmes point to confirm with a high degree of confidence the pattern is labeled correctly.
Below shows the "YOU ARE HERE CHART". I am regurgitating the typed information in the chart below. Since wave I lasted approximately 3 years, wave II should last between 1 _ to 3 years. Wave [X]/OO should last 4-6 months. The top of wave [X] is likely to be in near 280-320. Wave [Y] should be a non-limiting triangle to complete wave II, lasting for one year minimally (probably two years). The minimum length of wave III will be 1.618 x [log(260)-log(35)] x Start point of wave III. If wave III starts at 320, the minimal height for completion of wave III will be 448 on top of 320, or 768. I expect wave III will be around 2 to 2.618x wave I, so the maximum height for wave III is going to reside around 1047 (320+727). There is a lot of variation based upon the final top for where wave III will be, but it is well above the curent levels. I am using a log extrapolation based upon this wave structure, since the move is more likely to be logarithmic rather than linar. The time frame for completion of wave III is going to be 4-6 years years minimally. IT WILL BE MOST PROFITABL TO BUY AND HOLD. Trading in and out of the wave [Y].II that is likely to develop will be futile. The purple line shows the alternate wave pattern that could develop if the HUI turns south by a large degree at 230. If this occurred, wave III would likely reach a higher top, given a longer corrective sequence that would develop.
That is all for today. Updates for the week will include:
1) Wednesday - Update the US dollar and S&P 500 Indices
2) Thursday - Update of the TNX, XOI, and commodities
3) Friday - Natural Gas Index
The main focus of today was an examination of where the HUI is going. This article should serve as a reference for the larger degree pattern of where we are going in the next 1-2 years.
July 6, 2004
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