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June 13, 2005

Brief USD, HUI and S&P Update
by David Petch

US Dollar Index

I have spent a long time doing charts this AM to try and figure out the possibilities of the USD index and here it is. The preferred count has a zigzag forming. Wave [2].c retraced nearly 90% of wave [1], so if accurate, wave [2] will have an internal subwave decline to 82-82, bounce up to 85 in a terminal impulse pattern and head below 80. The preferred count does not have wave [3] extend in price, in fact it is the same size in price as wave [1]. It does however extend in price and time relative to the other waves, which lends credence to this count. The alternate count is a double zigzag completed, with a break above 89 required to invalidate the preferred count. If that occurs, the USD index is going to 96ish.. As mentioned yesterday, those shorting the USD have approximately a one month window before a bottom is in. The USD had a parabolic move recently and is expected to follow a pattern similar to the green line.

Figure 1

AMEX Gold BUGS Index (HUI)

I have made one important change to the HUI count. In the thousands of rules in Elliott, an X-wave will either retrace 61.8% or more than 1.618x a prior wave. Therefore my labeling of the (W)-(X)-(Y) for the correction was wrong. The implications for the pattern are that the move up should be impulsive or a terminal impulse to 230-250 to complete wave [B], with an impulsive decline after in wave [C]. Corrective patterns tend to have two legs equivalent to the longest wave or by a Fib relationship. Wave (A).[B] took 151 days and wave (B).[B] took 220 days. By this metric, wave (C).[B] should take approximately 69 days, or top out around July 24 (+/-2 weeks, likely early August). The decline afterward denoted in green should bottom around 175-180.for the start of wave III. The implications for this pattern are very important. This basically translates into wave III being the extended wave, and since waves II and IV alternate in structure, wave IV will likely have a sharp retracement of wave III. Normally wave I will have a 61.8% retracement, but since the 38.2% level has held, wave IV will likely retrace up to 40% of wave II when it tops in 2009-2010. At the end of wave III, selling a portion of positions will be recommended because the decline will be sharp. Wave V to follow will be a finale for the bull market in fear. Wave (C).[II] is not likely to bottom until later this year or into next year, depending upon how things progress, but wave (C) should be equal in time to wave (A) or 6 months, which by chance both equal wave (B) which will have lasted 12 months at July 24. The running correction scenario has been put to bed, based upon what the late night analysis has suggested. The probability of this pattern being accurate as labeled is >70%.

Figure 2

S&P 500 Index (S&P)

The Bollinger bands are in a consolidation pattern. In order for a ribbon formation to develop, all 3 BB's should base, rise and curl over. A ribbon formation may develop after the coming decline, but the pattern of the BB's call for a retracement. Recently, the %K crossed below the %D in the short-term stochastics, breaking out of a rising wedge. The decline is expected to "grind" downward for 3-4 weeks minimally.

Figure 3

The moving averages have the 155 day MA above the 50 and 200 day MA's suggestive the mid-term markets are in limbo relative to the nearer term and longer term market forces. The full stochastics have the %K recently curling over and set to decline. The decline phases on this stochastic setting is approximately one month. A bottom in the S&P is due around July 1-5.

Figure 4

The weekly chart of the S&P is shown below, with the Fibonacci time extensions at the top of the chart and the Fib retracements of the decline shown on the right hand side. The 1.618x Fib extension is due on April 28, 2007, or slightly under two years from now. The 61.8% Fib retracement is currently resistance (1239) and the 50% retracement (1149) is currently support. The Bollinger band pattern is still in a consolidation phase. Notice the full stochastics below have a rising trend line in place since early 2001.The %K recently curled up, but given the expected correction during the coming month, it could turn lower, since the closing price this Friday will be the actual closing price for the current data point. Interestingly, the 1.618x Fib time extension and the apex of the wedge on the full stochastics both lie around April-June 2007. This is when the S&P is expected to top out in wave b and head down in wave c.

Figure 5

The short-term Elliott Wave chart of the S&P 500 is shown below. As noted the past 3 weeks it has been though an expanding triangle has been forming. Fibonacci relationships are rare in expanding triangles, and an excerpt from and EXCEL spreadsheet shown inside the chart shows ratios of each wave in relation to the others. It is common for wave (e) of expanding triangles to be 2.618x wave (a), as noted in highlighted red. The implications of an expanding triangle are that the pattern will not be retraced more than 61.8% and another corrective wave will follow in the upward direction. The 61.8% retracement level currently resides at 1165. Two days of a price close beneath 1165 indicates the labeling scheme is incorrect. The decline should last for 3-4 weeks after wave [v] completes. Wave c.(3) of the expanding triangle is a terminal impulse (corrective). The likely pattern to follow an expanding triangle and wave [x] will be a zigzag or a flat pattern. After wave [x] completes, the S&P should rally up to 1300-1350 before declining to 1000ish in late 2006 early 2007 (less than 61.8% of the entire advance from the lows of March 2003).

Figure 6

David Petch
TreasureChests.info

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