AMEX Gold BUGS Index (HUI)
I thought it would be wise to exclusively focus on the HUI, since most people have positions in the precious metals (PM's). The Bollinger Band pattern had a significant convergence with all three lower bands. The green circle shows the anticipated area of decline for the lower 55 MA BB which is currently curling down. After a decline, watch for it beginning to curl up, as this will mark a top of some degree in the HUI. This is 2-4 weeks away minimally. The two purple ovals show what prior data looked like when tops of some degree were put in. The full stochastics have a rising trend line, which is bullish. We had to take a balanced approach between the bullish and bearish forces since the economy is walking a tight rope. The extension of the current leg up is discussed on the Elliott Wave charts, suggesting this move has legs. One other convincing piece of evidence for a strong rise in the HUI is the fact the index price rose above the upper 55 MA BB. This fact alone issues a buy signal. We recommend adding positions, but ensure a portfolio has a balance between oil stocks (IMO etc.), natural gas stocks (Trans Canada Pipeline), Uranium stocks (IUC on the Toronto Stock Exchange), and gold and silver stocks.
The only moving average left to take out is the 200-day MA. Given the rapid ascent of the HUI the past few weeks a pullback to 198-200 should be expected if the index has completed the current wave up. The short-term stochastics below broke the descending trend line, which is bullish. The %K is nearly set to head south, suggestive the early part of the week will be up, with the back end being short-term bearish (Thursday, Friday).
The weekly HUI is shown below. The stochastics below have two thicker purple trend lines drawn in place. When the %K pierce above the trend line, a breakout occurred. A vertical purple line at these points illustrates the point prior to the index taking of. Currently, the HUI is in a similar situation, with a thinner purple trend line drawn to distinguish it from the earlier trend lines. The tops were formed when the lower 34 MA Bollinger band curled down and started to curl up. These points are indicated with the thing vertical brown lines at the two prior tops. The lower 55 MA BB has been expanding in amplitude. The light green is an extension into the future for the hypothesized move it will follow. (I stress hypothetical, it merely is extrapolation based upon the prior data). The three breakout points connected from a rising trend line, suggestive that when the next corrective phase low occurs, it will be around 250-260. i.e. the HUI is going to go well above 260.
The short-term Elliott Wave count of the HUI is shown below. I have said it before, and will say it again, if one wants to learn Elliott Wave, simply discard all other Elliott Wave books, and purchase "Mastering Elliott Wave" by Glenn Neely. This is the only Elliott Wave book one needs to own. There are some items that are not mentioned in the book, but can be found through networking. The current advance from July 27th is an impulsive move. Wave [iii].4 is likely to complete wave [iv] and [v] this week, and begin wave 4 down to around 198-200 (199 is the 38.2% retracement level). The 0-[ii] trend line for the current impulsive wave has held well. No part of a 0-2 trend line can come in contact with wave 3. If it does, wave 2 has not terminated, or the move is not impulsive.
The mid-term Elliott Wave count of the HUI is shown below. When an individual gets started in Elliott Wave, it is best to follow ONE index and map it out daily. When the rules have been mastered, impulsive segments should be marked with a :5 and corrective portions with a :3. Fitting in the wave structures for the appropriate degree takes time, and strict adherence to the rules. I can do things relatively quicker since I have been intensely doing Elliott Wave for 3 and a bit years. Labeling a chart like this takes 45 minutes, as opposed to 4 hours). I purposely marked : 3's and :5's to stress the importance of labeling something accurately once, and retaining the base structures. :5's mark impulsive segments and must be used in accordance with the rules. This allows for an accurate placement of the degrees. Wave [W] has completed, and this was only possible with post-pattern confirmation. Wave [W] is a corrective sequence with three sub-waves of Intermediate degree. Wave (W) lasted 63 days, wave (X) lasted 59 days, and wave (Y) lasted 117 days. (W) + (X) was 122. One rule of Elliott Wave is that three waves of the same degree can not be of the same time frame. Wave (Y) being equal in time to waves (W) and (X) cements this count, since there is usually and equality in time among three waves, or a Fibonacci time relationship. Wave (Y) was complex with sub-wave W being a zigzag, and wave Y being a flat. The current move up is impulsive, and most likely is developing wave (A) of a zigzag (5-3-5) to complete wave [W].II. Wave I lasted nearly four years, so wave II should last at least 1/3 of that time frame. This point also suggests the running correction scenario I pointed out last September, based upon the developing wave I having an expanding pattern. Refer to Figure 6 to see the projections for when wave [X] terminates. Wave [X] could have its sub-waves as below extend further, but the best guess for wave [X] terminating is around 280-320 by January 2005. I do not have a bearish alternative count, since they have been quashed with the strong advance.
The longer term Elliott Wave count of the HUI is shown below. Unfortunately the software I use to produce a chart as shown below does not have logarithmic capabilities. The depth of the current correction is seen in relation to the entire move. There are some counts I have seen depicting the coming rise as wave .I. Two problems I have with this kind of count are as follows:
i) The recent bottom retraced precisely 61.8% of the prior wave, which would have been waves  and , respectively.
ii) Waves  and  do not overlap, but come a little too close for accepting this count.
Refer to "Technical Update of the AMEX Gold BUGS Index" posted on July 7, 2004. The "You are Here" chart (Figure 7) depicts the anticipated wave structure that is developing. I have not redrawn it, since nothing really has changed, except the failure of the then forming triangle. The lower degree wave patterns are hard to predict exactly how they form, but the larger degree scale should neander down the suggested path, with the occasional straying into the bushes.
How does volume confirm a top or bottom breakout??
Below is a chart of International Uranium. There are two purple ovals depicted 1 and 2. 1 was a recent top in IUC, accompanied with high volume and a MACD crossing over at high levels. Hi volume and hi MACD accompany a stock that has topped out. Higher volume spells distribution, since the volume cannot push the stock higher. Point 2 recently had a breakout in the stock price accompanied with heavy volume and MACD turning bullish. This type of set up accompanies a stock that is about to enter a strong upward move. The stock was up 50% with one week of trading. Using this information to follow gold stocks can help to confirm changes in trend, which should be reflected with the Elliott Wave count.
That is all for today. I will post the S&P 500 Index tomorrow AM, US on Tuesday, XOI and TNX on Wednesday and Commodities/other updates on Thursday.. I am splitting things up so a more detailed account of each index can be presented this week.