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September 03, 2008

AMEX Gold BUGS Index
by David Petch

The following article was posted for the benefit of subscribers on September 1st, 2008.

Tumultuous market conditions have taken their toll on the commodity sector and caused a change in the Elliott Wave count of the HUI as mentioned in the prior Internet update. The main crux of the problem has been leveraged individuals and funds that were forced to liquidate positions, thereby triggering stops all the way down causing increased liquidation. It is probably a safe bet that a significant portion of the tax-loss selling for 2008 has already occurred, but as analysis presented below suggests, trading opportunities exist over the next 4-6 months before the HUI completes the present consolidation pattern. I stress that 4-6 months is the minimum time frame for the HUI correction to complete, but it could easily extend until May-July 2009 (depending upon how long the consolidation pattern in the USD takes as mentioned in the last Internet update).

The upper Bollinger bands are all curling down, along with the lower 21 and 55 MA BB's...the 34 MA BB is in the process of curling up. Upper and lower BB's contracting suggests that a phase of consolidation is underway and should minimally last for 3-4 months. Fibonacci time extensions of various waves are shown near the lower portion of the chart with two Fib dates occurring mid and late September 2008. Short-term stochastics have the %K above the %D, nearing the upper horizontal channel line. The upper move minimally should last for another 5-7 trading days, if the present trend continues without a sharp reversal.

Figure 1

Red lines on the right hand side represent Fibonacci price projections of the move from late 2005 until May 2007 projected off the termination point of early September 2006. Blue lines on the right hand side represent Fibonacci price retracements of the move from early September 2007 until the March 2008 top. Areas of line overlap form Fib clusters, which indicate important levels of support/resistance. Moving averages are in bearish alignment (200 day MA above the 155 day MA above the 50 day MA), with the 50 day MA acting as resistance at 379. Notice the rising channel established since early 2006 until present. The move from March 2008 until present is classified as an elongated flat...a pattern that usually occurs in triangles. Full stochastics have the %K beneath the %D and the lower horizontal channel line and appears to be curling up, but there is no definitive guarantee it will happen...there is the potential for selling pressure to enter the market for the next few weeks.

Figure 2

The weekly semi-log chart of the HUI is shown below, with Fibonacci time extensions of various waves shown at the lower portion of the chart. Notice the cluster of Fib dates occurring on January 30th, 2009, which likely represents the termination point for the present consolidation pattern. Red lines on the right hand side represent Fibonacci price projections of the move from alternate count wave I projected off the termination point of alternate wave count (A).[Y].II. Upper Bollinger bands are starting to slowly curl over, suggestive that a bottom is in place or is near. I have included the preferred Elliott Wave count in colour and the alternate count in circled grey. At present, the HUI is most likely in a triangle for wave (C).[Y].II...I am uncertain if an elongated flat can represent one leg of a diametric triangle, so please keep this possibility in mind. As Figure 4 will show, it is likely the HUI has weakness for another 5-7 trading days before basing and rising to around 440. Subsequently, the HUI should curl down and consolidate around late December 2008 to late January 2009. Full stochastics have the %K beneath the %D and has been declining sharply for 6 months...it is poised to decline to depths not seen since early 2005. With the defined trend suggesting further consolidation, continue to follow the advice given in the TNX update a few days ago (paying down debt, ownership of bullion, accumulation of high quality gold and junior mining stocks).

Figure 3

The mid-term Elliott Wave count of the HUI I shown below, with the thought pattern forming denoted in green and the alternate path shown in grey. The likely pattern forming for wave (A).[B] is an elongated flat (wave C is greater than 161.8% of wave B) ; internal wave A is a zigzag, followed by wave B forming a flat (3-3-5), with wave C component forming the impulse. Wave C.[B] is underway at present, with the final leg down underway to complete the pattern...lows should be put in place between 310-320. Within 2-3 weeks, this pattern should be complete, with a subsequent move to 430-450 before curling down again. The USD has one final leg up to complete the present upward move before heading lower...this will likely coincide with a bottom in gold and the HUI.

Figure 4

Tomorrow's update of the USD Index will provide more clues for how and when the present pattern completes. More to follow for subscribers...

A major portion of the work I do is technically oriented, but I write 2-3 editorials per week often intertwined within the analysis. For further viewing of prior work, simply click on the Archive section of this site. Weekly, I update the AMEX Gold BUGS Index, AMEX Oil Index, US Dollar Index, 10-Year US Treasury Index, S&P 500 Index as well as commentary on market-related issues and new technical analysis findings. We follow some 60 stocks, with a focus on core positions and stocks that actually make up our personal portfolio. As well, the keeper of the site, Captain Hook writes 2-3 articles per week discussing macro issues, ratio analysis of various markets and an in-depth study of put/call ratios and shorting candidates.

If you have any questions, comments, or criticisms regarding the above, please feel free to drop us a line. We very much enjoy hearing from you.

David Petch
TreasureChests.info

Treasure Chests is a market timing service specializing in value based position trading in the precious metals and equity markets, with an orientation geared to identifying intermediate-term swing trading opportunities. Specific opportunities are identified utilizing a combination of fundamental, technical, and inter-market analysis. This style of investing has proven to be very successful for wealthy and sophisticated investors, as it reduces risk and enhances returns when the methodology is applied effectively. Those interested discovering more about how the strategies described above can enhance your wealth; please visit our web site at http://www.treasurechests.info.

Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Comments within the text should not be construed as specific recommendations to buy or sell securities. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. We are not registered brokers or advisors. Certain statements included herein may constitute "forward-looking statements" with the meaning of certain securities legislative measures. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the above mentioned companies, and / or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Do your own due diligence.

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