A young man in his late thirties has become fabulously wealthy. His educational background is superb. He has an undergraduate degree from Harvard, an M.B.A. from Yale and a PHD in economics from Chicago University. He began his career on Wall Street with the most prominent and well known investment banking firm, Goldman Sachs. In less than 6 years time he rose to the very top of the investment banking world. His income is measured in the tens of millions of dollars. The man is fabulous in more ways than one. He is a great athlete and a true health bug. He is brilliant, learned, experienced, healthy, and rich beyond most people's ability to imagine. He is considered the backbone of his industry, the investment banking world. Without his presence, participation, and integrity it is generally believed the industry he represents would cease to function.
This man is not only fabulously successful but also handsome, charming, physically attractive in every way. He is single and his presence is in tremendous demand in social circles in every wealthy community throughout the developed and undeveloped world.
The man's name is Meyer Gold. Because of his consistent integrity, success, brilliance and charm his friends around the world call him "My Gold." Meyer Gold revels in that nickname. No one has ever had a more successful and glorious future in place for the rest of their lives.
"My Gold," being a dedicated health bug, has a complete physical exam twice a year. He has just completed his semiannual examination and is waiting in his doctor's office reserved for special and prominent patients. His semiannual physical exam consisted of a complete blood test, urinalysis, E.K.G., complete set of X-Rays, colonoscopy, maximum stress test, and every other means of examining the human body in order to know if there is any hidden internal damage that is not visible to the naked eye. The doctor enters the office for special patients and informs "My Gold" of some potentially bad news that has been uncovered as a result of the extensive and time consuming examination he has just been through. The prognosis is that "My Gold" may have a serious health setback if he does not temporarily remove himself from his exhausting schedule. "My Gold," being of sound mind and desirous of maintaining a healthy body, says, "O.K., Doc. Time out. I'll change my schedule. How long must I do this for?" His doctor says, "I believe that in five to six months all of the internal negatives in your body will be removed. At that point in time your health should be completely restored and you will be in a position to resume your extremely active life style."
"My Gold" says, "Doc, does this mean that the so called bull market in Meyer Gold's life may resume in 5 to 6 months?" The doctor's response is, "You bet."
Meyer Gold's doctor and all of the specialists consulted to review the results of Meyers examinations have never in their professional careers made a mistake or had a misdiagnosis.
I, "Doc" Ron Rosen, can not claim never to have made a mistake. Quite the contrary, my road to learning is littered with mistakes. Learning how to survive mistakes and how to keep on learning is the way I managed to acquire the knowledge I have. One of the most important lessons I have learned is that when potential internal danger is detected caution is warranted. I believe that I have detected sufficient internal potentially damaging signs for the gold, silver, and precious metal shares markets. These potentially damaging signs are the reason I suggested selling precious metal shares and staying on the sidelines until the potential health problems of the shares are resolved. I said I would not suggest selling any physical gold or silver holdings.
Let's review the results of my continuing examination of the precious metals complex. My examinations of the precious metals market take place just about every day of my life and not just twice a year.
After a prolonged and extensive examination my diagnosis for the precious metals complex is that there is a case of exhaustion. The cure requires another 5 to 6 months of rest and rehabilitation. The process of rehabilitation requires that a retreat to previous prices take place for gold, silver, and the HUI. This will be a C leg down for gold and silver. Once the C leg is complete the correction will be over. The next bull phase should be ready to begin.
The first sign of a potential problem for the HUI was when the correction that began in May 2006 ended in an ascending triangle that failed. As the statement below describing an ascending triangle says, "Regardless of where they form, ascending triangles are bullish patterns that indicate accumulation." The ascending triangle that theoretically was supposed to end the correction in the HUI failed miserably with a collapse down to the 284 level. The HUI has, since the collapse, rallied to a slight new high and backed off once again. Was this a manipulated fake out. I have no way of knowing if it was a manipulation. Since the up tick rule as applied to short sales has been recently changed, manipulation via the short selling method is once again possible. However, the wave count on gold and silver bullion indicates that a Major Five Wave move ended in May 2006. Since May 2006 gold and silver have been correcting their Major Five Wave move. According to my reading of the wave count there is one more C leg down required before the correction in gold and silver is over. The C leg is usually the most severe part of the correction. The gold and silver charts are posted below.
"The ascending triangle is a bullish formation that usually forms during an uptrend as a continuation pattern. Regardless of where they form, ascending triangles are bullish patterns that indicate accumulation."
The triangle at the end of the correction in the HUI was an ascending triangle. The collapse down to the 284.85 level indicated that the ascending triangle had failed miserably. This rarely happens with an ascending triangle. The alarms went off in my head. Something is wrong with the bull move in the HUI. The gold and silver charts confirmed my suspicions that we should move to the sidelines and wait for the precious metals markets to confirm their move one way or the other. They have not yet confirmed their destination. However, I suspect, based on my reading of their charts, that the highest probability is that their destination is down, not up. I checked many of the gold shares to see if they had made a slight new high just as the HUI did. The answer was many gold shares are far from their highs. My suspicions rose.
A key reversal month is designated on the chart by the top half of the vertical monthly line being black and the bottom half being red. The high at $728, a Delta # 4 high, was a key reversal month. The gold price proceeded to collapse $166.50. Gold bottomed at $561.50 in the next month. Four months later the $561.50 low was tested by a decline to $563.50. I have designated the $563.50 test low as Leg A of an expanded flat correction. Leg A bottomed at Delta Long term # 5 low. If gold is correcting in an expanded flat correction there must be a new high. A new high was made this month at $755. I have designated that high as leg B of the expanded flat correction. The new high at $755 arrived at Delta Long Term # 1 high. It is appropriate that this month in which leg B is a new high is also a key reversal month. However, there is still some leeway for a slight new high without aborting the expanded flat correction designation. The next low is due to arrive at Delta # 2 low in February 2008. That is about four months from now. Delta # 2 low is in the time inversion window. However, I do not expect Delta # 2 low to invert to a high. My reasoning is based on the fact that the dollar is bottoming at Delta Long Term # 4 low. The next turning point is Delta Long Term # 5 high due in March 2008. Delta # 5 can not invert to a low. Only # 1 and # 2 can invert. Gold should decline while the dollar is rising.
I don't think it is likely that the HUI will be going up while gold is declining. If gold is soon to begin the C leg down of an expanded flat correction the gold price will go below the A leg bottom at $561.50. Putting these clues together, it appears to me that the HUI is in the process of topping. We may be witnessing a double top. The first top was 401.69. The second top was 402.27. In addition to a double top the daily chart shows that the HUI has made three lower highs only days apart. I believe it is probable that Delta Long Term # 5 high arrived early. If there is going to be a sharp decline Delta highs tend to arrive early.
Silver is undergoing a conventional flat correction. The C leg should bottom slightly below the A leg. The A leg bottomed at $9.60. The next Delta turning point is Delta Long Term # 2 due in February 2008. I don't believe that Delta Long Term # 2 low will invert for the same dollar based reason that I don't expect Gold's Delta Long Term # 2 to invert. It appears that gold and silver will be going down while the dollar moves up.
The dollar has either bottomed at Delta Long Term # 4 low or will be doing so in the near future. The next long term turning point is Delta Long Term # 5 high due in March 2008. The arrows on the chart are for the purpose of showing that the dollar price usually arrives in the standard deviation period for the Delta Long term turning points. The long term turning points are the numbers in the squares. The numbers in the circles are the medium turning points.
Disclaimer: The contents of this letter represent the opinions of Ronald L. Rosen. Nothing contained herein is intended as investment advice or recommendations for specific investment decisions, and you should not rely on it as such. Ronald L. Rosen is not a registered investment advisor Information and analysis above are derived from sources and using methods believed to be reliable, but Ronald L. Rosen cannot accept responsibility for any trading losses you may incur as a result of your reliance on this analysis and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. Do your own due diligence regarding personal investment decisions.