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September 04, 2007

The HUI's Lucky Seven (or Eight)
by Alex Wallenwein

7 Reasons Why the HUI Will Explode Upwards Soon

Even more so than gold itself, the HUI has undergone a prolonged sideways period with extreme fluctuations. Which way is it headed? Was the recent breakdown of the slightly rising trading channel that, in retrospect, dates back to early 2006 a warning signal - or just a blip on the radar screen?

There are seven powerful reasons that lend support to the view that it was just a minor blip. Actually, there are eight, but seven of them are technical. The eigth one is fundamental.

The apparent head and shoulder formation during the first three quarters of 2006 turned out to be a major head-fake. The down slope from the right shoulder bounced right off the strong support (Bottom 3) line established during Bottoms 1 and 2 that formed the neck line of the phony H&S formation.

The low point of the most recent downturn (Bottom 4) also bounced, but this time well before it even reached the strong support line indicated in light blue. So, technically, we have four points at which the support line held (4), an aborted head and shoulders breakdown (5), and a rising trading channel (6). That makes six. A seventh reason would be that the gold hart itself did not break down from its powerful pennant formation that dates back to 2006 as well, and is now in the upper range of its own rising trading channel.

That's a lucky seven.

But there's even more:

Going back in time a little further, we can see that this support line originates all the way back in late 2003. The December 2003 peak formed the beginning of a "W" or double-bottom formation that extended all the way into the breakout of late 2005. In order for this support to be breached, the HUI would have to go all the way back down to below 250.

And that, under the current fundamentals of a credit-crunch exacerbated by mammoth additional credit injections, would be a near impossibility.

But it gets even better:

This strongly supported chart formation has led us all the way into September of this year - and guess that means? The beginning of India's wedding and gold-buying season is right around the corner.

Jewelers and their customers now had a full two years to realize that prices of over $600 per ounce of gold are not really "too high" at all.

The coming breakout should accordingly be huge.

So, when will it happen? That's not the right question. The right question is: "When is it time to buy in?" If you've paid attention, you know the answer to that already.

Got gold?

Alex Wallenwein
Editor, Publisher
The Euro vs Dollar Monitor

Just like driving your car, investing only makes sense if you can see where you are going. The Euro vs Dollar Monitor is your golden windshield wiper that removes the media's greasy film of financial misinformation from your investment outlook. Don't drive your investment vehicle without it!

Copyright © 2003-2008 Alex Wallenwein

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