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Someone earlier in the week asked me to do a count for Newmont. I normally do not like to do Elliott Wave counts on individual stocks because it does not capture the psychology of the sector overall. Nonetheless, I gave it a whack with Newmont and the results are quite stunning. The wave count for Newmont does have some "technical issues":

  1. Wave [2] and [4] have overlap, but given the small size of the gold universe, I am not too worried about this.
  2. Wave [5] does not have an internal structure with an extended wave. If one is to presume the overall trend in commodities are in a bull market, then the two technical problems with the count just might have to be overlooked.

Rules are never meant to be overlooked, but given the size of the gold universe (I stress this point), certain factors that are rules in the broad market may require being discounted somewhat.

The count below suggests that the Newmont is putting in a terminal impulse pattern that could base for 2-4 months before breaking out. The chart shows that if an individual purchased shares of Newmont in December 2003 and are still holding, they are breakeven, or just above. This is a huge consolidation and also addresses the fact that Newmont production has been declining year over year for the past while. Since Newmont accounts for such a large weighting of the HUI, it is possible that the HUI is just finishing off wave [Y].II, which would be classified as a running correction. If this is the case, the HUI (gold and silver stocks) are going to be in a bull market until at least mid to late 2009, with three upward legs and two intervening corrections separating them. A wave IV correction in the HUI would last until 2011/2012, with a final wave V blow-off between 2014-2015. Something to ponder and with gold and silver stocks so out of favour; the time remaining for accumulation ranges from 3-4 weeks up to 3 months, depending upon how things play out. The longer the HUI and related components go sideways, the stronger the subsequent move will be.

In about two years, throwing a dart at gold stocks will be how to play the markets. For now, focus on junior producers or emerging producers. There is likely going to be a takeover frenzy in the coming years, particularly in politically stable locations.

Figure 1

That is all for this article, short and sweet, with the take home message to pick up some precious metal stocks before they do what Uranium stocks have done as of late.

We have around 36 different gold and silver stocks (some local base metal companies thrown in too) and 15 energy companies. I generally put out around 17-20 articles/month, with Captain Hook putting out 12-18 articles/month. If Elliott Wave analysis is examined with other indicators to help "gauge" the count, results can be simply astounding for accuracy of the bigger picture. Human psychology has to disseminate through the general public's veins before the blow-off phase can occur. Most people have to be standing up to their waist in poop before they realize there is a stink. This time will be no different, the wave structure merely helps to "gauge" where we are, a roadmap if you will.

Some people may think a sloppy drunken sailor did the Newmont count and I think that is the approach that must be taken, given the very small size of the investing public in gold stocks at present and the limited market capitalization of Newmont. With the HUI and other indices, a very strict approach to the rules must be taken. All of the problems with the wave count with Newmont could be alleviated if wave [4] was in fact the start of wave I, with it finishing at the exact same spot. Corrective waves can be up to 9 times the duration of the prior impulse, so we could have until late 2008 before this alternate count would be proven wrong. Either or, keep both open as a possibility with the latter not having any of the mentioned structural problems. For reference, my prior counts of the HUI remain unchanged i.e. a clear 5 wave impulsive structure started at around 36ish.

Have a Happy Holiday Season

 

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