Analysis below was published on September 18th, in the morning prior to gold shooting up $60/ounce after the FED announcement. Even before this event happened, the take home message was that the HUI and gold remain in sideways consolidation patterns with identified support/resistance levels. The price spike that followed was noted to most likely be an overly exuberant reaction to the FED not yet ready to even consider tapering. The signal to noise ratio for most indices is rather high at the moment and until a breakout to the upside or downside from these ranges occur, prices will continue to move in a sideways pattern.
The prognosis for gold, silver and related stocks is not very promising until the noted time frames discussed in the article below are reached, while the broad stock markets in general are showing no signs of weakness until at least 3-4 months left. Many people are wondering what is keeping the stock market trending higher at the moment, due to news clips such as falling demand in China for commodities, record number of people in the US on food stamps, many European countries at or near states of depression etc. etc. On the flip side of this, businesses have large amounts of cash reserves that are starting to be released to shareholders via yearly expanding dividends. Dividend yields are now much higher than most bond or treasury issues (treasury issues in stable countries), so anyone in retirement will be trying to maximize their return on investment for living. A shift of investment is now underway into the broad stock market as the baby boomers continue to follow the theory of "The Pig in the Python" (As boomers pass through each phase of life, they will distort the surrounding space through which they pass).
In current terms, boomers continue to influence the market by now starting to chase the higher yield seen in dividend paying stocks compared to bond and treasury yields that are rather staganant. The biggest boom of the next few years will be related to medical devices and biotech companies that continue to innovate new therapeutics to aid many seniors in their quest to maximize health and minimize disease. One biotech company we follow has already taken off, while one biotech company in material sciences has the potential to do well, so this area is becoming an area of focus on our site in the coming months ahead.
One other huge problem in the economy that currently taking a backseat to the Baby Boomers chasing dividend yield is the amount of debt that many people have accumulated over the past number of years. The chickens always come home to roost and now, many are trapped into the next 8-10 years to try and reduce their debt as much as possible before rates start to rise. We follow the long-term Elliott Wave pattern of the TNX and provided certain metrics are not taken out, sideways price action below 4.5% is likely to persist until the long-term pattern completes around 2020.
I really wish I could discuss oil, the XOI, Toronto Stock Exchange, Euro 350i Shares, gold, the US Dollar and currencies etc. but this has to be kept in a compact format. Everything that I follow is indicating the same trending pattern, with some future surprises lurking around the corner that many do not see coming.
One of these items is further research into the Contracting Fibonacci Spiral broad stock market indices were trapped in that I observed over two years ago and expanding this into spontaneous chiral nature. There should have been a top no later than June and failure for this to happen caused a shift in the pattern. In nature, there is a very well established behaviour at the physical and molecular level called chirality. As an example, an individual's left and right hands are identical, but have reverse symmetry, or are chiral in nature. In a nutshell the original CFS theory predicted a series of crashes at each time post. Failure for declines to start on the noted date strongly suggests the CFS has switched to a chiral nature, whereby new highs will be established by the new time post sometime in early 2016. I am still working on developing this idea and will be publishing it in the not too distant future.
Over the course of the next few weeks, trading positions will be recommended for how to play the precious metals sector and the broad stock market indices. As a hint, do not even attempt to short the broad stock market indices until the defined time frame mentioned near the end of the article.
AMEX Gold BUGS Index
The daily chart of the Gold Miner's Bullish Percent Index is shown below, with the HUI denoted in green. At present, the ratio has declined to around 48, indicating weakness in the precious metal sector. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K beneath the %D in 1 and 2 and above the %D in 3. Extrapolation of the %K trend in stochastics 1 and 2 suggest anywhere from 2-3 more weeks of further sideways to downward price action before a bottom is put in place.
The daily chart of the HUI is shown below, with all three upper Bollinger bands remaining in close proximity to each other above the current price, suggestive that further sideways to downward price action is likely. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K beneath the %D in 1 and 2 and above the %D in 3. Extrapolation of the %K in stochastics 1 and 2 suggest a bottom may not be due for anywhere from 2-3 weeks out. The %K in stochastic 4 curling down for the past 2 weeks opens up the possibility that weakness lasts up to 6 weeks out...we have to see how the HUI performs over the short-term but for now, technicals indicate overall weakness. Important support/resistance levels remain at 220 and 210. If 210 is taken out on a weekly basis, then a move to 170-180 becomes possible. There is extreme resistance at 280, so a weekly close above 285 would set the stage for a potential move to 340. For a best case scenario, expect further sideways price action between 210 and 280, carefully watching for the mentioned support/resistance levels.
The weekly chart of the HUI is shown below, with the upper 55 MA Bollinger band curling down, suggestive that a bottoming process has begun. The lower 55 MA Bollinger band declined nearly 7 points from last week, not providing any indication that a bottom has yet been put in place. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K above the %D in 1 and 2 and beneath the %D in 3. Although the %K in stochastic 1 has been pointing to the stars over the past few months, the %K in stochastic 3 appears to be going sideways to down...this implies further sideways price action. With the HUI declining for over 24 months compared to the 2008 decline of 8 months, the rebound is going to be much slower. Sharp declines mar positive psychology for a short period of time, while longer corrections really adjust the internal though processes of investors, making the expression "once burned...twice shy" continue to have relevance. Base building could continue to take anywhere from 8-12 months, maybe longer, depending upon how the overall broad stock market indices perform. As a hint, if the overall economy is not doing very well, then chances are the HUI will not either.
The monthly chart of the HUI is shown below, with the proposed Elliott Wave count included. The lower 21 MA Bollinger band is beneath the 34 and 55 MA Bollinger bands, indicating that an extremely oversold condition continues to develop. The upper 55 MA Bollinger band is 2 points higher than last week, strongly suggestive that a bottom has not yet been confirmed. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K beneath the %D in all three instances. Extrapolation of the %K in stochastics 1 and 2 provide no indication that a bottom has been put in place. It could take another 3-4 months before any indication of a bottom has occurred. As with previous analysis, it appears that a bottom in the HUI will not be confirmed until sometime between late December 2013 and early February 2014.
The mid-term Elliott Wave count of the HUI is shown below, with wave (Y) either complete or still forming. The sharp move up after wave [e] shown below, could represent wave [i] of the next leg up, with wave [ii] requiring at least one leg up and one more down (since wave [ii] retraced more than 61.8% of wave [i]). Please note that this is the "best case scenario". If further weakness leading to new lows does occur, then wave W becomes wave A, with wave B representing a very shallow to nearly non-existent retracement of any sorts...this scenario would see the HUI make fresh new lows within 3-4 weeks. Overall the technical charts suggest weakness, so watch the mentioned support/resistance levels very carefully.
The long-term Elliott Wave count of the HUI is shown below, with wave (Y).[C] either complete or still forming. Based upon the wave count below, the entire move after wave a (2008) is thought to be a part of the same corrective wave pattern. Since wave [C] is purely corrective with no terminal impulse structure, it is safe to assume that at a minimum, wave [D] up and wave [E] down at a minimum are required to complete this pattern. From a time perspective, at least 3-4 more years of sideways price action below 650 is required to complete the pattern before a final leg higher occurs.
S&P 500 Index
The daily chart of the CBOE Options Equity Put/Call Ratio Index is shown below, with the S&P 500 Index denoted in black. The ratio returned to above 0.55 after a very sharp spike down to 0.45 (an area associated with market tops), so the jury is still out as to whether or not the former high of early August is taken out. For this chart and this chart only, the %K above the %D is supposed to indicate overall weakness in the broad stock market indices, while a move beneath is a sign of strength. At present, the %K is beneath the %D, indicating strength in the overall broad stock market indices.
The daily chart of the S&P 500 Index is shown below, with the lower 21 MA Bollinger band continuing to remain beneath the 34 MA Bollinger band, suggestive that an oversold condition still remains in effect. Lower 21 and 34 MA Bollinger bands are curling down with rising stochastics (coupled with rising upper Bollinger bands) is strongly suggestive that the S&P 500 Index is going to crush the August high and have a measured move to at least 1780-1800 occur within a 6-8 week time frame. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K above the %D in 1 and 2 and beneath the %D in 3. With the %K in stochastic 3 curling up, expect at least another 3-4 weeks of continued sideways to upward price action before any sort of a top is put in place. A weekly close above 1710 implies a move to 1800, while a move below 1630 would suggest an end to the upward trend. Please note that every indication from the technical analysis suggests higher prices, but be aware of the lower level of support.
The weekly chart of the S&P 500 Index is shown below, with upper Bollinger bands still rising. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K beneath the %D in all three instances. Although there has been a negative divergence in all three Bollinger bands with the rising price the past 7 months, the %K in all three instances have curled up. If the negative divergence was negated, then we would likely witness a short-squeeze that has not been seen for some time. If this were to occur, then a move to 1900-2000 in the S&P 500 Index before February 2014 would not surprise me at all. Given the sharp rise in the S&P 500 Index for all of 2013, and the past 5 years for that matter, a correction of huge magnitude is looming in the not too distant future. From a structural perspective, there is no indication that the S&P 500 Index upward trend has completed. At this current point in time, a move below 1630 on a weekly basis is now the important support level to watch, as a close beneath it would imply an "end to the trend".
The monthly chart of the S&P 500 Index is shown below, with upper 21 and 34 MA Bollinger bands rising with the current price, suggestive that further sideways to upward price action is likely. It is important to note that the lower 55 MA Bollinger band curled up in late April 2013, which suggests a top is looming. In 2000 and 2008 when the lower 55 MA Bollinger band curled up, a definitive top did not occur for anywhere from 9-10 months out. Based upon this nugget of information, a top should not be expected until at least sometime between January and February 2014. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K above the %D in all three instances. Based upon the monthly chart, there is no indication that a top has been put in place.
The mid-term Elliott Wave count of the S&P 500 Index is shown below, with uncertainty at present as how to label the pattern. Either of the following scenarios are occurring at present:
- (In colour)Wave [g] completed, with an X wave down into early September and a move to the upside in wave Y is now underway that should last anywhere from 4-6 months.
- (In grey) The upward move requires relabeling to fit the upward projection. The entire move is corrective, so it is becoming very difficult to fit the pieces together. The corrective price action does not have required time elements to label the move up as a standard correction...if wave C terminated where wave [e] is shown, then wave D is still forming, with wave [d].D up at present, followed by wave [e].D and then wave E to the upside.
Under either scenario, the trend is to the upside, with ii) being much more bullish a count than wave i). Under i), a top is expected sometime between December 2013 and March 2014, while ii) requires at least another 5-6 weeks to complete D, followed by at least 4-6 additional months to complete wave E. Everything should be on cruise control at present, with the critical level of 1630 noted...a move beneath this level for whatever reason would be a very strong indicator that the entire move from 2008 until present has completed.
The long-term Elliott Wave count of the S&P 500 Index is shown below, with the original thought pattern to develop denoted in green. As Figure 11 suggests, a top is not expected until sometime between late December 2013 and February 2014 (at the earliest). Wave [B] is underway and once complete, wave [C].c down will either be impulsive or develop a terminal impulse (ending diagonal) to form a flat for wave c (3-3-5) or merely be a corrective wave of a triangle not set to complete until sometime in 2020. Under either scenario, a very sharp decline is expected for wave [C].c once wave [B] completes within the defined time frame. When this occurs, the best place to be will likely be US Dollars, as other currencies would decline due to a reduction in demand for commodities and a demand for cash payable loans etc.