I have been tracking a potential 5 wave decline in Gold stocks to help me also find a low in Gold.
Fridays reversal in both the $HUI and Gold was an encouraging sign for the bulls and whilst its only a 1 day move, it has the potential for something much more.
Off the lows we don't yet have a small 5 wave move, but it's encouraging to see a decent reversal, every turn starts out with the not many believing the market has turned, but when i can count a market having made a 5 wave completed sequence, i go into DEFCON mode looking for evidence a potential reversal.
The reason i was holding off suggesting to members to buy Gold and Gold stocks was the lack of evidence of a completed 5 wave decline in the $HUI.
But now we might have some evidence to suggest the trend from the Sept 2012 high (530) is over and a strong counter trend rally is under way, one that could possibly take the $HUI back to the $350 area.
Short term we need to see a small 5 wave advance, followed by a small 3 wave pullback, which will offer traders the chance to get long with limited risk.
So rather that "take a stab" at the low, we have a controlled setup that we want to see before we put $$ to work, whilst many others have been completely wrong footed by this decline.
I have been recommending to members to stay well away from Gold and Gold stocks until we have a completed 5 wave decline in place, we now have some evidence to suggest we could have a strong setup for a trade able move.
ABX
If you are aware of the component makeup of the HUI, you will be aware then that Barrick Gold is a large component of the $HUI, in fact its number 2 in the weighting of the HU, so it pays to watch other stocks and their relative Elliott Wave counts.
The monthly chart of ABC suggests wave [3] of a larger wave C is close if not completed, with the evidence shown last week, there is strong evidence a low could be in place.
With a decent bounce expected on the HUI based on its wave count, that should also align nicely with a bounce to around $20-25 on ABX, before new lows would be expected and finally completing long term patterns.
With Gold stocks probably one of the most hated investment vehicles around and a wave structure that looks complete, it makes for a low risk setup for a decent profitable trade, to those that have waited for the conditions to align.
Its times like these, that the if the conditions dictate, we need to rise in the face of fear and buy when not many are interested, I find the most profitable trades are when I go against the majority of the crowd, that's not to say we just fade the crown at any point, we still need a certain number of things to align.
As I write this, those conditions appear to be in place to offer a low risk setup, with minimum risk, the reward could be a substantial trade if it works out the way I suspect it will.
One day does not confirm reversal, but we have to start somewhere.
Until next time,
Have a profitable week ahead.
