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February 13, 2005

Paddled and Shocked
by David Petch

The lower 55 MA Bollinger band hooked up, suggesting the bottom is now in place. I go to work during the day and tinker with this stuff until late at night/early morning, so I am unable to post when the precise bottom comes during the day. The HUI was up on big volume for key stocks, confirming a bottom is in place. Also, the flaring down of the 55 MA BB well beneath the index was suggestive of a key reversal at some point. Don't you love it when the markets make one look silly? The HUI did not go to 180-185, and it did slice through 194 (the 61.8% retracement of the bullish impulsive wave I had counted), so what does this mean. I think it has two scenarios:

i) The running correction just had the paddles put to it and the shock has rejuvenated the sagging index. Addition of a little glucose and salts with good bedside manner could prop the swaying HUI up to 280-300. This little bit of extreme exercise down the hall of market hospital will likely make the HUI bed-ridden for 8-14 months in a large triangle pattern. The HUI is not a widely traded market, so certain rules regarding zigzags may have to be stretched.

ii) Wave [W}.II terminated at the lows of 190.5 two days ago and wave [X] has yet to show its presence. Under this scenario, the HUI could reach 350-400 and go sideways for 12-18 months prior to a further breakout.

Notice the short-term stochastics with the %K flaring well above the %D. There are two impulsive waves present that are complete as shown in Mondays update. The USD had a key reversal at 85.7ish and broke the trend lines for the zigzag. The USD is likely to have more tricks up its sleeve, so attention must be paid to this. I think that the USD will go test 80-81 again and then bounce up. The pattern has another 1-2 months, maybe more, but with the Elliott Wave count on the dollar, it is in wave [2].c right now so no time or retracement levels have damaged the count.

I am not going to present the Elliott Wave count, because that would take away from Mondays read and my discussion, but positions in high quality stocks that have a mine, are in production or are nearing production, have good management, minimal share dilution, safe countries (not Russia, Bema shareholders are going to be killed if Russia blocks their mine), etc. I would avoid pure exploration companies and simply take a list of stocks that have a mine (or are within 12-18 months of opening one) and see which ones have held up relatively good compared to the dogs. Certain stocks come to mind that have done well. The coming advance should see these things leap well above the pack. Some small speculative stocks have been crushed. Look for breakout volume on key stocks for entry, that way your money is not dead for a longer period of time.

The HUI having a big volume reversal with no capitulation is rather worry some in some regards, because there was no capitulation. This is a corrective phase though and likely not the end based upon no final volume. So, I have to stick with scenario i) or ii) for now. The high quality stocks have had minimal downside during this correction, even some going up, so pick'em carefully. By the way, the HUI appears to have a good setup for a minimal 2-3 month rally, but core positions should be held at all times. One little micro oil sand stock I discovered during research for a course called Technology Commercialization Management I is up 100% off the lows. This stock has high quality management and is up on heavy volume. All Canadian oil sand stocks are going to be equivalent to Uranium stocks in the coming decade (avoid Argentinean oil sand stocks, as Chevez is likely to divert that to China). Diversification into oil, Uranium, coal, biofuels (Boralex on the TSE), gold and silver is mandatory for a well-diversified portfolio.

I will update the HUI on Monday AM with a full chart coverage and commentary.

Have a good weekend.

David Petch
TreasureChests.info

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