|
I
will be at the Toronto Cambridge House Resource Investment Conference Oct
2-3. You'll find me at Dave Skarica's Addicted
To Profits Booth so you can stop by and talk with me. Please, stop by.
I'll also be speaking at his 3:00 PM workshop on Monday. For more information
click here: http://www.cambridgehouse.ca/toronto/oct2005.html
People have been
asking me where do I think gold stocks are going to
go next year. Okay, I'm going to go out on a limb here.
I think the XAU
is going to 193.
So how did I
come up with such a specific number? It's simple, Elliot Wave Theory. Elliot
Wave Theory was created by mathematician Ralph Nelson Elliot in the 1930's. His this theory compared the rhythm of the ocean waves to
the price fluctuations of the stock market.
Two years before
he died, in 1946, Elliott wrote his definitive work on his research entitled
"Nature's Law - The Secret of the Universe". Elliott was convinced
that his theory was a part of a much larger law governing all human activity.
In
"Nature's Law", Elliott stated that the mathematical basis for the
wave principle was a number sequence discovered (or more accurately
rediscovered*) by the mathematician Leonardo Fibonacci who lived in the thirteenth
century. In "Liber Abaci" (the best known
of his three major works published) the Fibonacci sequence is first presented
as a solution to a mathematical problem involving the reproduction rate of
rabbits. The number sequence presented is:
1, 1, 2, 3, 5,
8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, 1597, ...
The sequence has
a number of interesting properties. The two most noteworthy ones are first,
each Fibonacci number is the sum of the two numbers preceding it, thus it is an additive sequence.
For example, 3
and 5 equals 8, 5 and 8 equals 13, 8 and 13 equals 21 etc; and second, the
ratio of each Fibonacci number to its preceding number is alternately greater
or smaller than the golden ratio. As the sequence continues, the ratio
approaches the golden ratio, 1.6180339..., known also as "phi". For
example: 144 / 89 = 1.617977, 233 / 144 = 1.618055 etc. The ratio of any
number to its higher number approaches .618, after the first four numbers. For
example, 144 / 233 = 0.618025 etc. Notice the values of 1.00 (1 / 1), .50 (1
/ 2) and .67 (2 / 3) that area also important retracement
levels.
Applying the
Elliot Wave Theory to Financial Markets
There are three
basic aspects of the Elliot Wave Theory - wave pattern, ratio and time (in
that order of importance). Elliott claims that the Stock market follows a
repetitive rhythm of a five-wave advance followed by a three-wave decline. The
chart above shows one complete cycle. Wave one, three and five go with the
main trend and are called impulsive waves. Wave two and four are corrective
waves. After a five-wave advance has been completed,
a three-wave correction begins, subdivided in an A-B-C structure. After that,
a new five-wave advance can start.
Now what is
interesting is that you can use the Elliot Wave theory to forecast the
duration of market moves. I consider wave one the first phase of a bull
market and wave two a consolidation period leading to wave three or phase two
of the bull market.
According to
Elliot Wave Theory, wave two retraces .618 of the move of wave one while wave
three consists of 1.618 of wave one. Wave five is either 1.1418 or .382 of
the total move of waves one through three.
Applying Elliot
Wave Theory to Gold
So in getting
back to the stock market, the XAU made a bottom in 2000 at 41.61. It then
began wave one which ended in 2003 at XAU 113.41
According to Elliot
Wave Theory, the XAU should have retraced up to .618 of the move from 41.61
to 113.41. Such a retracement would have brought
the XAU down to 69.l376. The XAU made a wave two bottom at 76.79, which is
pretty close.
Now we should be
beginning wave three of the Elliot Wave sequence, which should add 1.618
times wave one points to the XAU. In other words wave three should add 116.18
points to the XAU (71.81 X 1.618). That would mean that wave three will end
with the XAU at 192.97(116.18 + 76.79).
What is exciting
for gold investors is that phase two of a bull market is the most profitable
phase to be in. It is the longest and biggest cycle of a bull market. Wave
three is also the most profitable wave in the Elliot Wave sequence.
At the moment,
the XAU is consolidating below its key three year resistance level. The rally
since May in gold stocks has been fun to be a part of, but the real move
hasn't even begun yet. This consolidation period is the perfect time to
either add on to your gold stock position or initiate one if you don't have
one yet. We aren't quite at that time yet. The XAU appears to be
consolidating below the 110-113 area just like it did below 95 back in June. We'll
get an entry point soon.
To find out what
gold stocks Mike Swanson holds and plans on buying subscribe to his free
Weekly Gold Report at http://wallstreetwindow.com/weeklygold.htm.
Mike
Swanson
Editor, Wall
Street Window
Disclaimer: Michael Swanson is the President
of USA Capital, Inc., which provides management, support, and research for institutional
investors, hedge funds, and mutual funds. The ChartWizard is also an employee
of USA, Capital, Inc. Both Swanson and employees and associates of USA
Capital, Inc. may have a position in securities which they mention on WallStreetWindow or any of its services. In such cases,
appropriate disclosure is made. Under no circumstances should the information
received from WallStreetWindow represent a
recommendation to buy, sell, or hold any security. WallStreetWindow
contains the opinions of Swanson and the ChartWizard and is provided for
informational purposes only. Neither Swanson, the
ChartWizard, nor TimingWallstreet, Inc., which owns
WallStreetWindow, provide individual
investment advice and will not advise you personally concerning the nature,
potential, value, or of any particular stock or investment strategy. To the
extent that any of the information contained on WallSteetWindow
may be deemed investment advice, such information is impersonal and not
tailored to the investment needs of any specific person. Past results of WallStreetWindow, the ChartWizard, or Michael Swanson are
not necessarily indicative of future performance.
WallStreetWindow does not
represent the accuracy nor does it warranty the accuracy, completeness or
timeliness of the statements made on its web site or in its email alerts. The
information provided should therefore be used as a basis for continued,
independent research into a security referenced on WallStreetWindow
so that the Subscriber forms his or her own opinion regarding any investment
in a security mentioned by WallStreetWindow. The
Subscriber therefore agrees that he or she alone bears complete
responsibility for their own investment research and decisions. We are not
and do not represent ourselves to be a registered investment adviser or
advisory firm or company. You should consult a qualified financial advisor or
stock broker before making any investment decision and to help you evaluate
any information you may receive from WallStreetWindow.
Consequently, the Subscriber understands and agrees that by using any
of the WallStreetWindow services, either directly
or indirectly, TimingWallStreet, Inc. shall not be
liable to anyone for any loss, injury or damage resulting from the use of or
information attained from WallStreetWindow.
| 
