Market Discussion and Update of the HUI

By: David Petch | Wed, Aug 22, 2007
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The sub prime debt market is huge and the pile or associated derivatives is larger (some 450 trillion), mostly in USD. If cash injection is required to stabilize things, it is likely that the USD (as per the charts) remains buoyant until mid to late 2009 before finally collapsing below 80 in one fowl swoop (pun intended, the USD is a dead duck, just a matter of time). The USD still is the reserve currency of the world and once the USD prints an equivalent amount of paper to reduce the global holdings of banks to 30-40% of the total paper, then it will be dumped.

Precious metal stocks have been hit hard due to a liquidity event. Owners of bad debt have to liquidate assets that have real value in order to meet their debt obligations, which translates into selling gold and silver stocks. The FED is still printing money like there is no tomorrow, but this is to counter the amount of money that has been lost from the system i.e. a big hole has been dug by the bad housing debt/related interest rate derivatives etc. and must be filled in by the FED (via printed money) in order to prevent the rest of the economy from falling into it. The money is not reaching to the far branches of the trees (us the little guy), but rather just reaching to the trunk (banks and other lending institutions). So in a manner of speaking, the general public literally is "out on a limb" and at risk of falling to the ground resulting in cracked nuts. The banks etc. however are the pillars of the current global economy and will still remain standing although some may succumb to gravity due to being infested with termites.

I have not sold any gold stocks in the down turn and in the future, I will be focusing on the addition of gold and silver bullion. The HUI was in a bullish pattern, but as one analyst so eloquently put (not sure of the source) "technical analysis is a wind sock, not a crystal ball" and the wind literally changed direction. This did change things in the near term but by no means did it alter the bullish outcome to follow. Bernanke at present has no choice but to print money like there is no tomorrow, otherwise face an apocalypse of the US economy. Governments always pass the buck and look to pin the tail on some other donkey. As such, future elected government officials are only setting themselves to receive the donkey's tail pinned to their heinie when it should have been pinned to someone else from a prior term.

The long-term Elliott Wave chart of the HUI is shown below, with the thought pattern denoted in green. Wave I has three impulsive segments (yes some can be counted many ways, but each one is progressively larger than the prior wave, with alternation between the supposed waves [2] and [4]) with the subsequent move being wave II. Although not presented here, I went into detail the relationships of price, time and complexity comparisons between the three impulsive waves at the request of someone (2/3 must be extended relative to the other waves to classify the higher Degree count as an impulsive wave). If this pattern holds, then the termination point will be higher than wave I, thereby classifying the pattern as a running correction. Running corrections always precede the next longest move in price, time and complexity, which is what we expect for wave III. Wave [W].II was a triangle, with wave [X] being a zigzag. Wave [Y] is taking the form of a flat, with wave (C ).[Y].II currently underway. The sharp decline of the market created a significant chink in the armour of confidence gold bugs have been wearing as of late, but with time they can slowly be hammered out and polished to make things as before. For this reason expect another 4-8 months of sideways action in the HUI. The alternative count (circled grey) implies that a zigzag is forming, with wave c to follow creating a move parabolic in nature...should the correction extend longer due to suppression.

Unfortunately we cannot carry on past this point, as our opinions on further developments are reserved for subscribers (this report contains 3 regular charts, 1 short-term Elliott Wave chart and 1 mid-term Elliott Wave chart). However, if the above is an indication of the type of analysis you are looking for, we invite you to visit our newly improved web site and discover more about how our service can help you in not only this regard, but on higher level aid you in achieving your financial goals. For your information, our newly reconstructed site includes such improvements as automated subscriptions, improvements to trend identifying / professionally annotated charts, to the more detailed quote pages exclusively designed for independent investors who like to stay on top of things. Here, in addition to improving our advisory service, our aim is to also provide a resource center, one where you have access to well presented 'key' information concerning the markets we cover.

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David Petch

Author: David Petch

David Petch
TreasureChests.info

Treasure Chests is a market timing service specializing in value based position trading in the precious metals and equity markets, with an orientation geared to identifying intermediate-term swing trading opportunities. Specific opportunities are identified utilizing a combination of fundamental, technical, and inter-market analysis. This style of investing has proven to be very successful for wealthy and sophisticated investors, as it reduces risk and enhances returns when the methodology is applied effectively. Those interested discovering more about how the strategies described above can enhance your wealth; please visit our web site at http://www.treasurechests.info.

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