AMEX Gold BUGS Index Chart and AnalysisCommodities / Gold and Silver 2013 Feb 25, 2013 - 07:04 AM GMT
The following article was posted one week ago with analysis of the AMEX Gold BUGS Index (HUI), except the chart has been updated. Below is the only Figure present in this update, with further explanations of what each coloured line represents. Potential outcomes for the HUI are examined, with the strongest being to the upside rather than downside. Upside targets are discussed and what must happen for them to be met.
Weekly Chart of the AMEX Gold BUGS Index
In order to address where the HUI is, I have taken the monthly chart and added parabolic curve lines to indicate support/resistance lines. A blue parabolic line was drawn over all the major tops from 2002 until 2011. An upper black parabola was drawn to include the 2008 and 2011 top, followed by the lower 2012 high. Finally, a lower black parabola was drawn to include the 2005 and 2008 lows.
The two black parabolas intersect around August 2013, with current lower support at 345...a close below this level on the monthly chart would invalidate this analysis and trigger a move lower. At present, the HUI is now down for the fifth consecutive month that follows a two month rally. Trader time frames vary and my personal is following 6-8 month trends...based upon the anomaly we are in, I will provide signals going forward for tops on the weekly charts for those that wish to trade in and out of positions. For resistance, a move above 450 would signal a move out of the parabolic arc congestion zone would signal a strong move to the upside.
The US Dollar Index has been going sideways for months, which has been difficult in establishing a definable pattern...one comes to an end and it extends further. Based upon current positioning, it could extend into late March, but stochastics suggest 2-3 weeks at best...a move to late March would create an overbought condition. As such, the sideways price action in the Dollar has affected the price of gold, which in turn has affected the precious metal stocks, which is the primary cause of HUI having an extended decline.
The next parabolas that intersect are the upper blue and lower blue lines that intersect in mid 2014. Based upon the Contracting Fibonacci Spiral, a top in gold is expected now between August and October 2013, given the fact a turn around has not occurred so this will translate into a limited period of time for an upside move in precious metal stocks. Given the HUI declined to 380, the upside is likely to be capped at 520-525. This may sound like a move with limited upside or positive intonations, but one thing that this chart does indicate however, is that a decline to the 2008 lows has a lower degree of probability for occurring, given the length of the present decline What the chart does suggest however, is a continuation of a narrow trading range in the HUI until late 2014.
Two different cycle waves, one in purple and one in green denote two potential start points for the HUI back in 2001. I personally go with the purple starting point, which ties into the Elliott Wave counts illustrated at the top. By chance, the purple line terminates around mid 2014, which illustrates an equivalent period of time between waves a (2008 high) and the expected termination point of wave b currently forming. Wave b should be at least equivalent or longer in time compared to wave a for the proposed Elliott Wave count to be accurate. One other point to consider is if two waves are equivalent in price, then the subsequent wave should be equal to both segments. Although gold is set top peak in 2020ish, precious metal stocks may have their huge moves after and extend into 2025-2026.
To zoom back into the current time frame of present, I highlighted a green circle that illustrates the lower 21 MA Bollinger band falling beneath the 34 MA Bollinger band. This observation has been in effect for two months now...back in 2008, this lasted for around the same period of time before the index reversed to the upside. This suggests that a bottom is due within the next 3-4 weeks and although not shown on the chart below, refer back to the HUI update that shows the weekly chart has a bottom no later than the end of March.
If things go as expected, there should be a bounce up to around the 515-525 level to complete wave [D]...not that it could go higher, but this will that will be dependent upon how far the US Dollar declines. Wave [D] can not be shorter than wave [A] (from 2008, which was 4-5 months, depending upon how it is counted), so the upward move that is pending should be over 4.5 months. Once a top is reached in this coming move, it will be suggested to lighten up, as the coming Contracting Fibonacci Spiral top of the broad stock market indices is due no later than May 21st, 2013 (A comprehensive article will be published in the April 2013 issue of Technical Analysis of Stocks and Commodities that provides the most recent findings for this cycle). The CFS cycle has been in effect since it started in 1932, so there is highly probable to remain in force until proven otherwise.
Following the wave [D] top later this year, expect wave [E] to see a sideways trending pattern within the parabolas until mid to late 2014. What this indicates is a very sharp upward trend occurring between late 2014 and 2020ish, that should have a trajectory much like 2001 until 2008, only much higher in price. The only way to be in the game is to be invested in the game. Continue to be invested in high quality gold and silver stocks in politically secure locations around the globe that pay dividends. Only 20% or less of a precious metals portfolio should be allocated to exploration companies or emerging producers in order to minimize risk.
I will update oil, gold and the XOI later on today, as this article took significantly longer than anticipated. Also, I will update health care companies we are following, that still do not indicate tops until sometime between May and June 2013, which happens to coincide with the Contracting Fibonacci Spiral top.
Ownership of gold and silver bullion should be accumulated and held until the expected 2020 top, which will be an aid to capital preservation. I do want to again stress that the CFS cycle is pointing for a very sharp inflationary spike that tops out no later than August to October of this year (maybe November if the US Dollar Index continues to avoid correcting) which subsequently ties into the CFS cycle. If the HUI takes out 525, then it raises the possibility of a doubling from current levels, or 700-720, but again, this will be dependent upon market conditions at that point in time.
The main theme of this article is to illustrate where the HUI is within its pattern and how it remains confined to the parabolic arcs. A break below 340 would have bearish implications, but as noted from analysis on the monthly chart or daily and weekly charts, a bottom is expected within 2-4 weeks. An over extension of the downside move is only increasing the upside target.
One final Elliott Wave count not shown due to scale is that wave [C] completed in May 2012 and wave (B).[D] down is nearing completion before wave (C).[D] rises to complete a flat (3-3-5)...this count has as much of a probability for being correct as the current labelling scheme, so please keep this in mind.
One final item to address are stochastics 1, 2 and 3 shown below in order of descent. The %K in stochastics 1 and 2 have been in a down trend for nearly two years, which has created an oversold condition. There is no indication of a reversal in trend based upon stochastics from the monthly chart, but the daily and weekly charts do indicate a bottom within 2-4 weeks.
Only time will tell if we get a very sharp spike of inflation as expected before events unfold as expected as defined within the CFS cycles...that is all for now..back later on tonight, with an update of oil, natural gas and the AMEX Oil Index.
By David Petch
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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