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January 13, 2007

Update of the AMEX Gold BUGS Index
by David Petch

The following article was presented on January 8th, 2007 to the benefit of subscribers. The data may be 5 days old, but provides a picture of the HUI and how the wave structure will likely develop over the next while.

The count presented today shows another 2-3 weeks of possible consolidation before the HUI heads higher. The HUI put in a reversal doji on Friday, but the lower 55 MA Bollinger band is at 291, up 5 points from last week. The HUI is setting itself up for a big move to the upside, but the lower 55 MA BB requires to begin curling over first. The upper 21 and 34 MA BB's are curling up, confirming Friday's bottom, but indicate the move up will be a sub wave of a corrective structure. Short-term stochastics have the %K beneath the %D; the %K may oscillate around the %D for a few weeks before moving higher.

Figure 1

Moving averages are in a transition state (155 day MA is between the 50 day MA and the 200 day MA), with all three providing resistance between 323-332. Full stochastics have the %K beneath the %D, with no sign of a crossover. Given the separation between the %K and %D, it is highly unlikely that the HUI is going to be breaking to new highs before a 2-4 week consolidation. I am going to start updating the gold stocks this week, so refer to last weeks top 7 pick for 2007 (I will start with this list and mention others that I have not covered).

Figure 2

The weekly HUI chart is shown below, with Fibonacci time extensions of wave [1] shown at the top of the chart and Fibonacci price projections of wave [1] shown on the right hand side (denoted in red). The chart is in semi-log format to capture the potential move that lies ahead during the next 3-4 years. The 55 week MA Bollinger band is up 5 points from last week, with no sign of it curling down yet (when the 55 week MA BB begins to lose velocity (weekly price gains) and starts to curl over, this will indicate a turning point in the HUI). Full stochastics have the %K above the %D, but has curled over, establishing a down trend line. The BB's are nearing a point where volatility has been extinguished and will initiate another phase in volatility thereafter.

Figure 3

The mid-term Elliott Wave chart of the HUI is shown below, with the suspected pattern developing denoted in green. There is a lot going on within this chart, so I did not even attempt to label the internal components of wave (y).D. The decline abrupt decline in the HUI occurred 2-3 weeks earlier than anticipated, causing wave [y] to take form of a neutral triangle (Wave (c ) being the largest wave). As many of you are probably are aware, triangles can evolve into many different forms, so caution must be exercised (things can occur that will only properly labeled after the pattern completed). Wave E is likely developing into a triangle, with wave [b] likely to form this week. This pattern should take 3-4 weeks to complete before breaking to the upside.

Figure 4

The long-term Elliott Wave count of the HUI is shown below, with the preferred count shown in colour and the alternate count denoted in circled grey. The preferred and alternate counts are equal in probability for occurrence, so keep both in mind. The preferred count has wave II taking 18 months, approximately half the time wave I took to form. Wave [2].III has taken 11 months to form, while wave [1].III took 8 months. Generally, wave 2's should be equivalent in time to the prior wave 1 or longer. Wave II taking half the time of wave I implied that the move to follow would be parabolic. As such wave [2].III should have taken half the time of wave [1] to form, or 4 months. This could be something that has to be swallowed, but is worth noting. Classifying wave [X].II as a double zigzag and wave [Y].II as a non-limiting triangle to complete the pattern would eliminate this problem. This is food for thought and this chart should indicate that a strong move to the upside in the HUI can be expected.

Figure 5

On our site, I usually publish 18-22 articles/month and Captain Hook publishes 12-14 articles/month on average. We cover around 35 precious metal/base metal stocks and 12-15 energy companies. For those not familiar with my methodology, refer to prior articles on this site under David Petch, titled "The Technical Pallette". Have a good day.

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.

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