HUI Index, What Just Happened?
S.M. Himes
We have been working off the belief that the HUI index has been forming a rare pattern known as the “Three Peaks and a Domed House” pattern. In a previous post I charted this pattern and suggested some downside targets. To review, the pattern itself only requires that price visit point 10. That has clearly occurred and then some. Our downside targets were exceeded dramatically. The completion of the pattern begs the question what happens next. Here’s a snippet from the last post.
“Of greater importance is what happens after the pattern is finished. To wit I think we must consider the larger chart patterns, and it’s just too early to tell. In my view the bull market must expand a full order of magnitude or be subject to potential distribution parametrics within the context of declining open interest.“
Well, I have no crystal ball as to what’s next, but here are some thoughts. Let’s try something a little different here. Let us consider that the HUI index stopped at my original target in the 250 area rather than crashing like it did. Do you see the potential for a distributive right shoulder to mirror the left shoulder of 2006 and 2007? That is how I would expect a bear market to setup. The market has not given us this potential to worry about. Instead it has offered us a great clue by crashing through all support levels of the past few years. If you are a HUI bull I think you should probably be thankful for this action. In my view the action is consistent with a young bull. That may sound a little crazy, but consider this. Perhaps this clearing event is just the catalyst required to allow the bull to expand a full order of magnitude. Clearly, the HUI chart does not confirm my thesis, yet. However, if I’m right then I expect a large wave III to be setting up out of the trough on my chart. Look for increasing price volatility to the upside now to confirm the bullish paradigm. Also pay attention to the pattern setup, as there is likely to be chart confirmation (RSI divergence for example) prior to the beginning of a strong impulse wave.
Charts are courtesy of stockcharts.com.
Three peaks and a domed house pattern discovery credit goes to George Lindsay, “Encyclopedia of Stock Market Techniques” 1971. .
S.M. Himes
View additional commentary at:
http://paintthecharts.blogspot.com/
November 1, 2008
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