The Creek Awaits Another Assault: HUI Time

March 15, 2007

Thirdeyeopentrades has been watching the current eleven month consolidation in gold stocks with fascination. Many times when prices break up through resistance at The Creek it's not too long before prices pull back to test that former resistance to see if it morphs into Ice, another term for support.

The present consolidation in the HUI index of unhedged miners has continued well above The Creek. Each time index prices fall into the 270's buyers have appeared and shorts have covered. We couldn't help noticing this past weekend, while preparing the weekly Thirdeyeopentrades newsletter edition, how well the HUI index is holding up and how close to a potential breakout it could be setting up for. Apparently, an index of unhedged miners is where one should be focused, especially in light of gold in the $600's and likely to continue much higher over the years ahead.

Let's examine the chart and we'll point out some areas of interest.

You may notice the HUI:$GOLD ratio red resistance line and that we're on breakout watch. The MACD histogram is neutral and, if these miners are setting up to run, that it best improve quickly and we would like to see rising bars appear that continue higher than the bars which peaked in December 2006. The Relative Strength metric has remained above the 40 level the entire duration of the consolidation.

What we have been watching closest is The Creek. It seems made of titanium encased bricks! Some technicians are expecting one more drastic fall in price away from that wall of resistance, potentially all the way back to the 250's.

We don't know what the near term brings this index but there are key rally potential ingredients in the chart above. Eventually, it is our opinion that prices will get past The Creek and surpass the 401 swing high. If one were to calculate a simple 1:1 ABC Up (using 270 as the "C"), then the target for the next subsequent up move targets 506.

Hey, we would take that kind of move.

Gold is still being mined and refined at the rate of almost 2,600 tonnes per year.

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