We believe that the HUI Amex Gold Bugs Index is building a base from which it will rise sharply for most of 2007. There is a Symmetrical Triangle pattern completing, which suggests prices should rises sharply once it concludes. This pattern is a consolidation pattern, a continuation pattern, meaning the direction of prices that preceded it will be the direction of prices that follows it. The chart below shows that the direction of prices was up before this pattern emerged, thus the direction of prices will rise afterwards.
Prices have been in a long-term rising trend-channel since 2000, and should continue further to the upside. The Elliott Wave labeling confirms this thesis, as the HUI is completing an intermediate degree wave 4 symmetrical triangle inside a Primary degree wave (3). Wave fives tend to extend in precious metals, so Intermediate degree wave 5 could be a nice ride.
Triangles are five sets of three waves each. Minor degree waves a through d are complete and wave e down is finishing. Once e bottoms, perhaps around 280 to 300ish, Intermediate wave 4's triangle will be complete and 5 up will start. We are not far from that launch point.
The HUI Amex Gold Bugs Index fell 2.97 points Friday to close at 314.12. Volume was huge at 175 percent of its 10 day average. Downside volume led at 79 percent, with declining issues also at 79 percent. Our key trend-finder indicators remain on a "sell" signal. The HUI Purchasing Power Indicator fell to 162.60, a new low for the decline, remaining on a "sell" from December 21st. Since this generated a "sell" signal, the HUI fell 18.77 points, or 5.73 percent over two weeks. The HUI 30 day Stochastic Fast fell to 5.26, below the Slow at 30.41, remaining on a "sell" from December 15th. Since this indicator generated a "sell" on December 15th, the HUI has fell 30.57 points, or 9.01 percent. The Stochastic measures breadth momentum while the Purchasing Power Indicator measures demand and supply momentum.
The "sell" signals in our key trend-finder indicators for the HUI confirm that wave d of a Symmetrical Triangle topped, and the current decline is wave e down, which should complete Intermediate degree wave 4 of an eventual five-wave primary degree wave (3) up. Once that pattern completes, then the HUI should see a huge rally into Intermediate wave 5 of primary (3). That should likely start in early 2007, and last most of the year.
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