HUI the Big Picture

March 5, 2012

The HUI has been in a bull market since the very end of 2000 and has created one bullish chart pattern after another. On the chart below you can see all these beautiful pit stops or resting periods, in red, before the next leg up could begin. There were four consolidation patterns formed over the next 7 1/2 years or so that showed the bull market was for real. That 7 1/2 year run ended with the 2008 H&S top that led to the big crash. Before we move on notice how each breakout move, from the red consolidation patterns, took about six to seven months to complete the next leg higher. I view that period from late 2000 to 2008 as a period onto itself with the symmetry of those consolidation patterns and impulse legs pretty much standard bull market phenomenon.

HUI first major leg of the bull market.

Now let's extend the same chart out in time so you can see what has happened since the 2008 crash. As noted on the chart above each rally phase from the bottom at 2000 to the top in 2008 took 6 or 7 months to complete. The very first leg up off the 2000 low took 7 months. Now fast forward to the crash low in 2008. That impulse leg up took twice as long to complete at 14 months. I think the 2008 crash low started a new phase in the bull market for precious metals stocks in that the rally phases will become longer in time and price. I still don't for sure yet if that is the case as we are still currently in the next consolidation pattern. Lets take a look at our current consolidation pattern that is showing a bullish rising channel or running correction. This most recent running correction is already almost 1 1/2 times as long as any of the preceding red consolidation patterns in the first phase of the bull market at 2 1/2 years. It appears that the first impulse leg and consolidation pattern have taken on a bigger look compared to the first part of the bull market from late 2000 to the H&S top in 2008. As you can see on the chart below we are again approaching the low end of the running correction which represents a good low risk entry point, Note the negative divergence on the RSI at the top of the chart. This is a positive characteristic of a running correction. You can see how the RSI is correcting while the HUI running correction is in an up channel.

Is there a new paradigm shift since the 2008 crash low of bigger impulse legs up and longer consolidation patterns?

With this last chart I want to put our bullish rising flag or running correction into perspective for you based on the information described above. Consolidation patterns generally show up halfway in an uptrend and if the uptrend is extended, like the bull market from the late 2000 bottom to the 2008 top, they show up roughly halfway between each impulse leg higher. What I think this running correction will be is a halfway pattern that began at the 2008 crash low to the first high that started the very beginnings of the running correction in December of 2009. On the chart below I've placed two red rectangles that are exactly the same size that measures time and price. The one on the left measured that big impulse leg up off the bottom in both time and price and if our current consolidation pattern or running correction is truly the halfway pattern the next move higher, when it finally begins, should have a similar symmetry to the first impulse leg in time and price.

Bottom line is that this running correction has worn down most precious metals stock investors. This is what consolidation are all about, the fight between the bulls and the bears until one side wins out. In a bull market, like we have with the precious metals complex, the eventual breakout should favor the bulls as the dominate trend is up. If we have one more test of the bottom blue rail of the running correction, around the 500 area, that would represent a most excellent entry point.


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