Analysis below was published on September 18th, in the morning prior to gold
shooting up $60/ounce after the FED announcement. Even before this event happened,
the take home message was that the HUI and gold remain in sideways consolidation
patterns with identified support/resistance levels. The price spike that followed
was noted to most likely be an overly exuberant reaction to the FED not yet
ready to even consider tapering. The signal to noise ratio for most indices
is rather high at the moment and until a breakout to the upside or downside
from these ranges occur, prices will continue to move in a sideways pattern.
The prognosis for gold, silver and related stocks is not very promising until
the noted time frames discussed in the article below are reached, while the
broad stock markets in general are showing no signs of weakness until at least
3-4 months left. Many people are wondering what is keeping the stock market
trending higher at the moment, due to news clips such as falling demand in
China for commodities, record number of people in the US on food stamps, many
European countries at or near states of depression etc. etc. On the flip side
of this, businesses have large amounts of cash reserves that are starting to
be released to shareholders via yearly expanding dividends. Dividend yields
are now much higher than most bond or treasury issues (treasury issues in stable
countries), so anyone in retirement will be trying to maximize their return
on investment for living. A shift of investment is now underway into the broad
stock market as the baby boomers continue to follow the theory of "The Pig
in the Python" (As boomers pass through each phase of life, they will distort
the surrounding space through which they pass).
In current terms, boomers continue to influence the market by now starting
to chase the higher yield seen in dividend paying stocks compared to bond and
treasury yields that are rather staganant. The biggest boom of the next few
years will be related to medical devices and biotech companies that continue
to innovate new therapeutics to aid many seniors in their quest to maximize
health and minimize disease. One biotech company we follow has already taken
off, while one biotech company in material sciences has the potential to do
well, so this area is becoming an area of focus on our site in the coming months
ahead.
One other huge problem in the economy that currently taking a backseat to
the Baby Boomers chasing dividend yield is the amount of debt that many people
have accumulated over the past number of years. The chickens always come home
to roost and now, many are trapped into the next 8-10 years to try and reduce
their debt as much as possible before rates start to rise. We follow the long-term
Elliott Wave pattern of the TNX and provided certain metrics are not taken
out, sideways price action below 4.5% is likely to persist until the long-term
pattern completes around 2020.
I really wish I could discuss oil, the XOI, Toronto Stock Exchange, Euro 350i
Shares, gold, the US Dollar and currencies etc. but this has to be kept in
a compact format. Everything that I follow is indicating the same trending
pattern, with some future surprises lurking around the corner that many do
not see coming.
One of these items is further research into the Contracting Fibonacci Spiral
broad stock market indices were trapped in that I observed over two years ago
and expanding this into spontaneous chiral nature. There should have been a
top no later than June and failure for this to happen caused a shift in the
pattern. In nature, there is a very well established behaviour at the physical
and molecular level called chirality. As an example, an individual's left and
right hands are identical, but have reverse symmetry, or are chiral in nature.
In a nutshell the original CFS theory predicted a series of crashes at each
time post. Failure for declines to start on the noted date strongly suggests
the CFS has switched to a chiral nature, whereby new highs will be established
by the new time post sometime in early 2016. I am still working on developing
this idea and will be publishing it in the not too distant future.
Over the course of the next few weeks, trading positions will be recommended
for how to play the precious metals sector and the broad stock market indices.
As a hint, do not even attempt to short the broad stock market indices until
the defined time frame mentioned near the end of the article.
AMEX Gold BUGS Index
The daily chart of the Gold Miner's Bullish Percent Index is shown below,
with the HUI denoted in green. At present, the ratio has declined to around
48, indicating weakness in the precious metal sector. Full stochastics 1, 2
and 3 are shown below in order of descent, with the %K beneath the %D in 1
and 2 and above the %D in 3. Extrapolation of the %K trend in stochastics 1
and 2 suggest anywhere from 2-3 more weeks of further sideways to downward
price action before a bottom is put in place.
Figure 1
The daily chart of the HUI is shown below, with all three upper Bollinger
bands remaining in close proximity to each other above the current price, suggestive
that further sideways to downward price action is likely. Full stochastics
1, 2 and 3 are shown below in order of descent, with the %K beneath the %D
in 1 and 2 and above the %D in 3. Extrapolation of the %K in stochastics 1
and 2 suggest a bottom may not be due for anywhere from 2-3 weeks out. The
%K in stochastic 4 curling down for the past 2 weeks opens up the possibility
that weakness lasts up to 6 weeks out...we have to see how the HUI performs
over the short-term but for now, technicals indicate overall weakness. Important
support/resistance levels remain at 220 and 210. If 210 is taken out on a weekly
basis, then a move to 170-180 becomes possible. There is extreme resistance
at 280, so a weekly close above 285 would set the stage for a potential move
to 340. For a best case scenario, expect further sideways price action between
210 and 280, carefully watching for the mentioned support/resistance levels.
Figure 2
The weekly chart of the HUI is shown below, with the upper 55 MA Bollinger
band curling down, suggestive that a bottoming process has begun. The lower
55 MA Bollinger band declined nearly 7 points from last week, not providing
any indication that a bottom has yet been put in place. Full stochastics 1,
2 and 3 are shown below in order of descent, with the %K above the %D in 1
and 2 and beneath the %D in 3. Although the %K in stochastic 1 has been pointing
to the stars over the past few months, the %K in stochastic 3 appears to be
going sideways to down...this implies further sideways price action. With the
HUI declining for over 24 months compared to the 2008 decline of 8 months,
the rebound is going to be much slower. Sharp declines mar positive psychology
for a short period of time, while longer corrections really adjust the internal
though processes of investors, making the expression "once burned...twice shy" continue
to have relevance. Base building could continue to take anywhere from 8-12
months, maybe longer, depending upon how the overall broad stock market indices
perform. As a hint, if the overall economy is not doing very well, then chances
are the HUI will not either.
Figure 3
The monthly chart of the HUI is shown below, with the proposed Elliott Wave
count included. The lower 21 MA Bollinger band is beneath the 34 and 55 MA
Bollinger bands, indicating that an extremely oversold condition continues
to develop. The upper 55 MA Bollinger band is 2 points higher than last week,
strongly suggestive that a bottom has not yet been confirmed. Full stochastics
1, 2 and 3 are shown below in order of descent, with the %K beneath the %D
in all three instances. Extrapolation of the %K in stochastics 1 and 2 provide
no indication that a bottom has been put in place. It could take another 3-4
months before any indication of a bottom has occurred. As with previous analysis,
it appears that a bottom in the HUI will not be confirmed until sometime between
late December 2013 and early February 2014.
Figure 4
The mid-term Elliott Wave count of the HUI is shown below, with wave (Y) either
complete or still forming. The sharp move up after wave [e] shown below, could
represent wave [i] of the next leg up, with wave [ii] requiring at least one
leg up and one more down (since wave [ii] retraced more than 61.8% of wave
[i]). Please note that this is the "best case scenario". If further weakness
leading to new lows does occur, then wave W becomes wave A, with wave B representing
a very shallow to nearly non-existent retracement of any sorts...this scenario
would see the HUI make fresh new lows within 3-4 weeks. Overall the technical
charts suggest weakness, so watch the mentioned support/resistance levels very
carefully.
Figure 5
The long-term Elliott Wave count of the HUI is shown below, with wave (Y).[C]
either complete or still forming. Based upon the wave count below, the entire
move after wave a (2008) is thought to be a part of the same corrective wave
pattern. Since wave [C] is purely corrective with no terminal impulse structure,
it is safe to assume that at a minimum, wave [D] up and wave [E] down at a
minimum are required to complete this pattern. From a time perspective, at
least 3-4 more years of sideways price action below 650 is required to complete
the pattern before a final leg higher occurs.
Figure 6
S&P 500 Index
The daily chart of the CBOE Options Equity Put/Call Ratio Index is shown below,
with the S&P 500 Index denoted in black. The ratio returned to above 0.55
after a very sharp spike down to 0.45 (an area associated with market tops),
so the jury is still out as to whether or not the former high of early August
is taken out. For this chart and this chart only, the %K above the %D is supposed
to indicate overall weakness in the broad stock market indices, while a move
beneath is a sign of strength. At present, the %K is beneath the %D, indicating
strength in the overall broad stock market indices.
Figure 7
The daily chart of the S&P 500 Index is shown below, with the lower 21
MA Bollinger band continuing to remain beneath the 34 MA Bollinger band, suggestive
that an oversold condition still remains in effect. Lower 21 and 34 MA Bollinger
bands are curling down with rising stochastics (coupled with rising upper Bollinger
bands) is strongly suggestive that the S&P 500 Index is going to crush
the August high and have a measured move to at least 1780-1800 occur within
a 6-8 week time frame. Full stochastics 1, 2 and 3 are shown below in order
of descent, with the %K above the %D in 1 and 2 and beneath the %D in 3. With
the %K in stochastic 3 curling up, expect at least another 3-4 weeks of continued
sideways to upward price action before any sort of a top is put in place. A
weekly close above 1710 implies a move to 1800, while a move below 1630 would
suggest an end to the upward trend. Please note that every indication from
the technical analysis suggests higher prices, but be aware of the lower level
of support.
Figure 8
The weekly chart of the S&P 500 Index is shown below, with upper Bollinger
bands still rising. Full stochastics 1, 2 and 3 are shown below in order of
descent, with the %K beneath the %D in all three instances. Although there
has been a negative divergence in all three Bollinger bands with the rising
price the past 7 months, the %K in all three instances have curled up. If the
negative divergence was negated, then we would likely witness a short-squeeze
that has not been seen for some time. If this were to occur, then a move to
1900-2000 in the S&P 500 Index before February 2014 would not surprise
me at all. Given the sharp rise in the S&P 500 Index for all of 2013, and
the past 5 years for that matter, a correction of huge magnitude is looming
in the not too distant future. From a structural perspective, there is no indication
that the S&P 500 Index upward trend has completed. At this current point
in time, a move below 1630 on a weekly basis is now the important support level
to watch, as a close beneath it would imply an "end to the trend".
Figure 9
The monthly chart of the S&P 500 Index is shown below, with upper 21 and
34 MA Bollinger bands rising with the current price, suggestive that further
sideways to upward price action is likely. It is important to note that the
lower 55 MA Bollinger band curled up in late April 2013, which suggests a top
is looming. In 2000 and 2008 when the lower 55 MA Bollinger band curled up,
a definitive top did not occur for anywhere from 9-10 months out. Based upon
this nugget of information, a top should not be expected until at least sometime
between January and February 2014. Full stochastics 1, 2 and 3 are shown below
in order of descent, with the %K above the %D in all three instances. Based
upon the monthly chart, there is no indication that a top has been put in place.
Figure 10
The mid-term Elliott Wave count of the S&P 500 Index is shown below, with
uncertainty at present as how to label the pattern. Either of the following
scenarios are occurring at present:
- (In colour)Wave [g] completed, with an X wave down into early September
and a move to the upside in wave Y is now underway that should last anywhere
from 4-6 months.
- (In grey) The upward move requires relabeling to fit the upward projection.
The entire move is corrective, so it is becoming very difficult to fit the
pieces together. The corrective price action does not have required time
elements to label the move up as a standard correction...if wave C terminated
where wave [e] is shown, then wave D is still forming, with wave [d].D up
at present, followed by wave [e].D and then wave E to the upside.
Under either scenario, the trend is to the upside, with ii) being much more
bullish a count than wave i). Under i), a top is expected sometime between
December 2013 and March 2014, while ii) requires at least another 5-6 weeks
to complete D, followed by at least 4-6 additional months to complete wave
E. Everything should be on cruise control at present, with the critical level
of 1630 noted...a move beneath this level for whatever reason would be a very
strong indicator that the entire move from 2008 until present has completed.
Figure 11
The long-term Elliott Wave count of the S&P 500 Index is shown below,
with the original thought pattern to develop denoted in green. As Figure 11
suggests, a top is not expected until sometime between late December 2013 and
February 2014 (at the earliest). Wave [B] is underway and once complete, wave
[C].c down will either be impulsive or develop a terminal impulse (ending diagonal)
to form a flat for wave c (3-3-5) or merely be a corrective wave of a triangle
not set to complete until sometime in 2020. Under either scenario, a very sharp
decline is expected for wave [C].c once wave [B] completes within the defined
time frame. When this occurs, the best place to be will likely be US Dollars,
as other currencies would decline due to a reduction in demand for commodities
and a demand for cash payable loans etc.
Figure 12
