Elliott Wave Counts for AMEX Gold BUGS Index and U.S. Dollar
Commodities / Gold & Silver Stocks Sep 26, 2011 - 12:06 PM GMTBy: David_Petch
A number of really interesting developments have occurred so far this week. Newmont is making fresh new highs and attached a dividend to rise in turn with the commodity itself. Three hours later, Hecla Mining issued a similar sort of plan. The seniors of the HUI are holding it up, while stocks that I am following Hecla (HL) and US Gold (UXG.TO) still have not put in bottoms. Stocks such as SanGold that are just emerging producers and getting the bugs worked out also are still basing. There are several charts to suggest that gold stocks have broken the downtrend pattern to the broad stock market indices, but still will be subject to corrections when they occur. Since the next major top is not due till late 2012/early 2013 based upon our Contracting Fibonacci spiral cycle, gold and silver stocks have a very nice run ahead of them. However, the opportune time lies somewhere between now and mid November 2011.
HL has the better pattern compared to UXG because it has been correcting for nearly one year (much like USA.V). The move up in stock prices will begin at the top and work its way down. If USA.V manages to get to $2/share next year after majors have run, you know a top will be not too far off. One stock that I was following was CRK.TO or Crocodile Gold Corp. Based out of Australia. They are a similar sort of company compared to SanGold in nearly every regard (similar share float, similar amount of gold), but the share price has been clocked the past 19 months. This ties into the Australian government trying to impose huge tax grabs on companies for doing business there, much like Alberta, Canada attempted back in 2008. This weakened resource companies based in Australia for fears that no money could be made and resource development dried up somewhat. In Alberta within two months after their announcement of up to 25% royalty charges, somewhere between $20-30 billion dollars worth of projects were mothballed and investment capital placed elsewhere. The red-neck Alberta government tried to back peddle on this, but it is very slow for investors to return when someone tries to act like Hugo Chavez in so called democratic countries.
For Uranium stocks, Australia is as good as any, maybe better, because stocks are undervalued due to the current ban on Uranium production there. Australian oil production is in decline and senior government officials know that unless they have solar panels covering the Western part of the country, they will have energy shortages. The only way to efficiently solve this problem is with Uranium. New styled Uranium reactors are very efficient and are impossible to have melt downs occur...they must be built first however.
So, what to invest in? HL and UXG are my two candidates for establishing positions once the charts indicate bottoms have been put in place. As of this AM, there were 24 million shares being shorted on HL, out of a total of 290 million shares, or just shy of 10%. The number of shares being shorted represents 3 days to cover. The short positions increased by 3% yesterday, so this suggests further downside. To view American stock short positions, www.shortsqueeze.com is useful for the free stuff.
Also, the short- position in Newmont Mining increased by 6% yesterday. The number of shares being shorted against NEM is nearly half of HL, so there is a likelihood that a top is looming. Analysis today will review all of the above thoughts from a technical perspective.
One thing extra I will address about Manitoba for being a mining district...the Rice Lake Gold Camp is the only actual true gold mine in Manitoba and government officials want to let this grow. Taxation is done in accordance with a set policy that is not intended to stifle economic development.
AMEX Gold BUGS Index
The daily chart of the Gold Minder Bullish percentage index is shown below, with the HUI shown in green. The HUI has been in an uptrend for nearly 3 months and the ratio is near 80, which has been indicative of preceding tops. 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. In general, periods of 3 months of upside in a given index require some sort of correction...chances are a top in the HUI was put in place in early September and a retest is likely before some sort of decline lasting 3-4 weeks. The S&P 500 Index has 7-10 days of sideways to upward price strength at a minimum as mentioned two days ago, so this should provide strength for precious metal stocks. When the next down leg in the S&P 500 index occurs, it should provide some weakness in the HUI.
Figure 1
The daily chart of the HUI is shown below, with the lower 55 MA Bollinger band in curling up in late August, suggestive that a top was put in place. Upper 34 and 55 MA Bollinger bands are at 646.93 and 647.82, compared to last week's values of 636.97 and 645.75, respectively. Rising upper Bollinger bands suggest that a top is in place and unless continued upside and forcing short positions to buy, it is likely the buying position for precious metal stocks is sometime in late October/early November. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K beneath the %D in 1 and above the %D in 2 and 3. Based upon the lower Bollinger bands being so var from the top and upper Bollinger bands at overbought levels, the daily chart of the HUI suggests weakness. Anyone wishing to establish short-term trading positions should be careful based upon the data from this chart.
Figure 2
The weekly chart of the HUI is shown below, with the lower 21 and 34 MA Bollinger bands in close proximity to each other, and nearing the lower 55 MA Bollinger band...the lower 34 MA Bollinger band broke above the 21 MA Bollinger band, suggestive that the HUI is overbought in the short-term. All three upper Bollinger bands are in close proximity to each other and just above the index. A close in the HUI above 640 would generate a buy signal. 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. The %K in stochastic 3 is slowly curling up and the %K in stochastic 2 suggests upside strength lasting 6-8 months out...there can however be 3-4 weeks of general weakness in the HUI. A great buying opportunity lies somewhere between late October and early November based upon this chart...lower Bollinger bands will be in a more favourable setup to support a 6-8 month run up in prices.
The monthly chart of the HUI is shown below, with upper Bollinger bands continuing to drift above the index. Lower 21 and 34 MA Bollinger bands are rising, but it will take the 21 MA BB to curl down and generate a buy signal on the monthly chart. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K beneath the %D in 1 and above the %D in 2 and 3. The %K in stochastic 1 beneath the %D confirms the mentioned Bollinger band setup that another 1-2 months of time is required to generate a buy signal.
Figure 4
The mid-term Elliott Wave count of the HUI is shown below, with wave (XX) thought to be forming at present. It is possible that wave G of is underway of a diametric triangle extending out from the triangle count shown below, but this would require at least two months of downside in wave (XX). The count shown at present implies wave (XX) is forming a flat structure, with wave C yet to happen. This is the preferred count and indicates that a top likely was put in place back in early September.
Figure 5
The long-term Elliott Wave count of the HUI is shown below, with some added tool items. The sine tool indicates that the move up underway at present indeed could be a diametric triangle with a bottom not likely due until December under this scenario. Under the preferred count, the corrective structure is already 4 1/2 months in duration, which would provide a strong base for upside in 2012. The longer the present correction takes to conclude (upside move within a larger Degree pattern), the more upside potential. The actions of HL and Newmont caused quite a stir and was realized yesterday in the HUI. Generally, the majority of market participants are dead wrong, so be careful about what is put out on Stockhouse or other blogs. Those accumulating for the next 12-15 months...it is worth to slowly dip one's toe in the pool but do not jump in head first...it could be shallow. Confirmation is required before any buy signals are given...the upward trend in the HUI is about the maximum length of time it generally runs before some sort of a pullback. The level and time duration of the pullback will be quite telling.
Figure 6
What are the reasons for weakness in gold stocks? Both the stock market weakness and strength in the US Dollar Index. Below is a very small excerpt from last weeks USD index Update.
The short-term Elliott Wave count of the USD index is shown below, with the thought pattern forming denoted in green. Wave [E] is clearly underway at present, and should have at least another 4 1/2 -6 1/2 months of upside. Technical charts suggest sideways to moderately higher prices in the USD index over the course of the next 7-10 trading days before partially retracing the sharp move that occurred during the fist two weeks of September.
Figure 7
The mid-term Elliott Wave count of the USD index is shown below, with the thought pattern forming denoted in green. The bottoming pattern for wave [D] took longer to complete than expected, so the proposed rising pattern will likely occur, but shifted out in time by 4 months. The minimum upside target is 81-83, with an upside extreme of 85-87. All of this should occur by early February to April 2012. This is the minimum time frame expected and it could evolve into a longer pattern if wave [E] forms a triangle within a triangle (this occurrence could drag out wave [E] by 12 months). When these things happen they are immediately noted, but the passage of time must occur for that to happen.
Figure 8
Although the above analysis was performed last week, it still is pertinent for the coming months ahead, which presents a road map of what to expect. Technical analysis S&P 500 Index, AMEX Gold BUGS Index, US Dollar Index, 10 Year US Treasury Index, AMEX Oil Index, Oil, Natural Gas and 14 Horizon Beta funds are updated weekly, along with market commentary and articles related to the macro economy, as well as where we are in the Contracting Fibonacci spiral.
By David Petch
http://www.treasurechests.info
I generally try to write at least one editorial per week, although typically not as long as this one. At www.treasurechests.info , once per week (with updates if required), I track the Amex Gold BUGS Index, AMEX Oil Index, US Dollar Index, 10 Year US Treasury Index and the S&P 500 Index using various forms of technical analysis, including Elliott Wave. Captain Hook the site proprietor writes 2-3 articles per week on the “big picture” by tying in recent market action with numerous index ratios, money supply, COT positions etc. We also cover some 60 plus stocks in the precious metals, energy and base metals categories (with a focus on stocks around our provinces).
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