Analysis Of The Gold Bugs Index ($HUI)
Martin F. Goldberg, MS, P.E.
November 19, 2007
Continuation of Correction is Likely
The precious metals stocks corrected hard over the last week. Still, nothing has changed with regard to the long term picture. It's bullish. You have seen the long term chart depicted in the chart below many times, which can serve as your long term road map for the HUI Gold Bugs Index. The proposed wave 3 of Wave III has been in progress since mid-August. Clearly the third wave of a third wave in Elliott Wave terms promises to be a long and powerful up wave. Still, this up wave is divided into a smaller 5-wave pattern of its own. It's not going to be a straight line up. I'm guessing that the correction that began weeks marked the completion of the first wave (let's call it wave I) of wave 3.
Here's the daily action for the timeframe covering the wave 2 correction.
Through this correction from the winter of 2006 to Mid-August of 2007, the HUI has been tough to trade. Notice how throughout the correction the index made a series of higher lows. When the mid-August correction resulted in a lower low for the HUI this provided enough for even the staunchest of bulls to be discouraged. However, the HUI stayed down for only the blink of an eye, before it entered into a strong wave 3. Now that the HUI appears to have entered into corrective wave ii of wave 3, we can (only) say the following about this wave ii: It looks to be sharp.
A closer look at wave I up is shown below. The move of the HUI from the high 200's to almost 460 took place over a time frame of 57 trading days. The correction, although it has retraced a sufficient 38 percent of the advance, has occurred over only 5 days which is only 12 percent of the duration of the advance. Therefore, it appears that the correction is likely to extend for some more time.
Below, the chart is reduced to a line chart of the daily closings for the HUI, with a proposed Elliott wave count of the wave I advance shown in purple. If this wave count turns out to be valid, the current wave ii correction will extend to wave 4 at about HUI 395 before wave iii begins.
Is there any additional evidence to suggest that the correction will continue for additional time? Consider the weekly action in gold. The advance from August to last week took 12 weeks. The correction took only one (so far), and gold has closed near its low for the week. This would suggest some additional correction is likely and this tends to confirm the conclusion that additional correction of the HUI will occur.
If I'm wrong and the correction ends next week, that would be indicative of an extremely strong Wave 3 of WAVE III to the upside. It would suggest gold and gold stocks as worthy of only holding and not trading.
Do you have your core positions?
Martin F. Goldberg, MS, P.E.
Market Analyst
mdelmgoldberg@comcast.net
Martin Goldberg is a Chartered Market Technician who manages money
privately. He web site which is on technical analysis of financial
markets may be accessed at http://martinmarketreport.blogspot.com
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