 The HUI - A
New Bullish Phase
PMtrader
September 8, 2004
Caveats:
The title to this paper
could have just as easily read, "The HUI - A New Bullish
Phase?" The question mark gives due deference to the
laws of probability. However, since in the author's opinion,
both the technicals and the fundamentals tend to support the
bullish case, the question mark was left off - implicitly, the
future is unknowable with certainty.
If you haven't read, The HUI Spread
- An Update, you may wish to read it now as it is referred
to later in this discussion.
The author remains long gold and silver.
Short Term:
With the mindset produced
from the dog days of summer (and in fact since January of 2004),
it is hard not to be pessimistic when you see the HUI start to
drop for several days in a row. However, the author's sense of
the probabilities dictates that the HUI has broken out of the
doldrums and has entered a new bullish phase. Since conclusions
in forecasting are dictated by probability, it is important to
continue looking for confirmation of the primary trend. In this
regard, consider the short term chart of the HUI index.
The bottom of the local (in
time) trend channel was set by the lows in July & August,
and is depicted as the solid green line. This trend line has
a slope of about .75 - i.e. each day, the bottom of the HUI's
support value increases by .75 units. With this in mind and if
the trend channel is to be confirmed, one would expect that this
lower line would not be penetrated with conviction; i.e. intraday
values below the lower support line could be 'excused,' but two
or more closes below it would raise a red flag. Thus, and in
the sense of high probability, the short term conclusion is that dips
in the HUI going forward should be shallow, as they will quickly find support.
The top of the trend channel is depicted as a translucent green
band, and was drawn parallel to the solid green line of support.
The red circle represents a failed attempt on the index to set
a more aggressive trend channel - in the language of an earlier
paper, "The Progression of the Gold Bull," the index
was unable to sustain the higher energy level. The blue ellipse
represents a significant amount energy, which was used in testing
the upper band of the trend channel. Heuristically, it appears
that the HUI index was loath to settle back down into the less
aggressive channel. Therefore, one might hypothesize that when
the top of the current channel is tested, it will not hold -
meaning
that higher HUI values would soon be in the cards.
Longer Term:
For a discussion of
the longer performance (months instead of days or weeks) of the
HUI, consider the 50 dma of the spread as discussed in The
HUI Spread - An Update. Each time the 50 dma of the spread
has peaked above the linear trend line since November of 2000,
it has represented a buying opportunity for the HUI index. Although
a peak is only completely discernable in hindsight, it appears
that it is at least close - or it may have already happened.
Whether history repeats, and this indicator again correctly gives
a buy signal has yet to be proven. However, in the sense of probabilities,
it seems likely.
One last thing for emphasis: When the "Spread" in the
HUI is peaking, it indicates that the mining shares are underperforming
the price of gold (POG), and all that this latter implies - i.e.
fairly poor investor sentiment. Similarly, when the Spread is
finding a minimum, it signifies that the mining shares are outperforming
the POG - generally, investor sentiment is very bullish under
these circumstances. Thus, the technical conclusions from the
50 dma of the spread coincide with this well known market sentiment
indicator.
 September 8, 2004
PMtrader
Email: PMtrader
Copyright ©2004 by Author - Reproduced with Permission.
Please allow me to reiterate what I mentioned in my last paper,
for those who might have missed it. My novel, Eye of
the Pyramid, is available.
Thank you to those who have
already purchased it. Axiom House has put together a first class
hardcover book.
Relevant links are:
(or click on the cover) -->
Axiom House: http://www.axiomhouse.com/index.htm
Eye of the Pyramid: http://www.axiomhouse.com/EyeofthePyramid/main.htm
 About
Terry L. Krohn
Mr. Krohn is a research scientist living in the Washington D.C.
area.
His field of expertise is scattering physics - the analysis of
interactions between electro-magnetic waves and matter.
321gold Inc
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