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January 07, 2007

The HUI Amex Gold Bugs Index Should Do Well in 2007
by Robert McHugh

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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"He counts the number of the stars;
He gives names to all of them.
Great is our Lord, and abundant in strength.
His understanding is infinite.
Psalm 147:4, 5

We wish you a healthy and prosperous New Year!

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Robert D. McHugh, Jr. Ph.D.
Main Line Investors, Inc.

Robert McHugh Ph.D. is President and CEO of Main Line Investors, Inc., a registered investment advisor in the Commonwealth of Pennsylvania, and can be reached at www.technicalindicatorindex.com. The statements, opinions and analyses presented in this newsletter are provided as a general information and education service only. Opinions, estimates and probabilities expressed herein constitute the judgment of the author as of the date indicated and are subject to change without notice. Nothing contained in this newsletter is intended to be, nor shall it be construed as, investment advice, nor is it to be relied upon in making any investment or other decision. Prior to making any investment decision, you are advised to consult with your broker, investment advisor or other appropriate tax or financial professional to determine the suitability of any investment. Neither Main Line Investors, Inc. nor Robert D. McHugh, Jr., Ph.D. Editor shall be responsible or have any liability for investment decisions based upon, or the results obtained from, the information provided.

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