The HUI: Wave III Verticalicious

Well, hello to everyone. It has been some months since I have written an editorial so just where do we start? I suppose that the best way may be for us to review a bit of our previous work as we set the stage for what we think may come to pass in the Precious Metals sector. Past editorials can be reviewed at the link, below.

www.gold-eagle.com/research/goldrunnerndx.html

In the last editorial, we had made suggestions on how we thought the HUI correction might play out. Below, is a passage from that editorial of May 16, 2006.

"I would put the higher probability of this decline ending at 327 down to 305 with the remote possibility of it dropping fleetingly to the 270 to 280 area. If the HUI drops below 300, it will be like trying to keep a very large inner tube under water, IMO."

We now know that the HUI did spike down to the 270 area on June 13th, then bounced higher, again. We also know that the Precious Metals sector is now moving into a period of seasonal strength, though some weakness might remain toward the end of August. If this fractal pattern of the HUI were to trade exactly like the earlier fractal, we could get another spike down to slightly new lows, but I do not expect that to occur. Instead, I expect the HUI to show strength except for some consolidation toward the end of August before we make a very aggressive run up into October.

The chart of the HUI, below, shows what I expect to occur over the next several months. The colored circles on the left side of the chart show the applicable points in the "first fractal" which I expect to coincide with the colored circles on the right- the current fractal. I do apologize for the circles on the right having turned into ovals when I uploaded the chart, but I have been struggling a bit with Stockcharts.com, lately. The HUI chart shows a pink arrow at what I expect to be a 468ish target in October, with another pink arrow at what I expect might be a higher 740 to 780ish target in March to May of 2007.

A sharp advance to the 468ish level would likely be followed by a consolidation above the red "angled line" to what I would expect will be the 424 area, before a bit of a slurring of price upward, then a real run to 740 to 780.

Please remember that most of my work is intermediate-term in nature and that the fractal work requires conversion of daily charts to weekly charts. In making the comparisons, it is difficult at times in translating daily to weekly moves. Such work is certainly prone to cause some distortion in the time-frames. At times over the last year, I have feared that my time-frames were off, but the recent sharp correction in the HUI put us soundly back on track, assuming we are correct in that the June 13th low as the correction bottom.

From the May 2005 bottom at 165, our editorial work had been looking for the last HUI top to come in at the red angled line resistance in the 393 area. We got that top a bit later than expected at the red angled line at 401 as the angled line acted as strong resistance. No matter exactly how the coming HUI moves play out, I am most confident of a strong intermediate upward move in the HUI bounded by the angled lines. Over the last few months I have suggested that the next strong move up in the HUI would be related to a revaluation process for the Precious Metals reserves of the PM companies. This move in the HUI will likely see all sectors of the PM stocks participating as reserves are revalued higher while producers show increased earnings as the result of higher PM pricing. Please remember that reserves are valued at a 3 year average of the price of the underlying metal so the explorers have lagged a bit unless a specific company released very good news. Going forward, I expect the explorers to participate, but at an increasing rate to the producers. The explorers will likely accelerate their moves throughout the Wave III advance and might truly outshine the producers in the coming Wave V.

Let's look at $Gold to see if we can tie together some thoughts as to how the HUI fractal might continue to play out. I had referred to what I believed might occur in the May 16 editorial when I had stated…………….

"I don't think the "market" has been willing to valuate the Gold stocks at this time based on the higher current price of Gold. I think the market wants to see if Gold can hold the break-out level above $550 before it will revaluate the Gold stocks commensurate with higher average prices. All it will take is a re-test of higher levels, one which shows this move is for real, and that would set the Gold stocks off like fireworks. At this time, I do not believe that even $550 Gold is priced into the Gold stocks."

Those words from May 16th might make more sense in retrospect as we look at the Gold chart. Gold dropped down to test the $550 area, then bounced hard. With that move, I believe that $Gold completed the necessary re-test for seeking higher levels. A bit of a correction could continue to play out if this correction fulfills as a symmetrical triangle, but I believe the upward path for Gold is about ready to resume. It will be this resumption of $Gold (and $Silver) moving higher that will finally force the revaluation of the PM stocks much higher, IMO, though the PM stocks may anticipate the Gold move a bit.

Back in August of 2005 we had penned an editorial we named "Gold~ Marching Toward A Parabolic Move." In that editorial we placed a very long-term chart of $Gold, attempting to show a potential fractal from Gold's 70's move that might repeat, today. We had suggested that the upward move in Gold would rise at a lower angle as it had in the 70's, then it would show an accelerated trend, higher. We had also suggested in following editorials that we expected Gold (like in the portion of that 70's chart) to have a fleeting but sharp correction that would bounce quickly back toward the highs. This is precisely what we believe happened on the recent sharp pullback in $Gold. We also believe that this sharply higher rate of ascension for $Gold will continue on to new highs in the near future.

The following chart of $Gold shows the flatter move of the "march toward a parabola." It also shows the sharper rise over $700 which we expect has created the beginning of a new channel. The last fleeting drop in the price of $Gold tested the top of the former channel. We would now expect that $Gold might again visit the top of the new channel in the $1,100 to $1,200 area between the 3rd quarter and the end of 2007. Such a move would likely propel the share prices of the PM stocks across the board, much higher.

Please remember that we take a bit of a different view of how this historic and generational Gold Bull 5th Wave move might play out. We expect $Gold to sweep continuously higher in one large parabolic move, unlike others that believe the move will come in 2 stages. We expect the new higher channel for $Gold to hold…….well, at least until an even higher angled channel of the parabolic process takes over.

I would strongly suggest that everyone take a look at Mr. Rosen's editorial that was recently posted by Dr. Vronsky. Mr. Rosen shows a LT chart of $Gold that is similar to the ones I have posted. For the first part of the fractal run from the 165 area, Mr. Rosen's work was not as positive as what I had posted, but at this time his "turning points" mirror my expectations. If fact, I would expect that his call for "an October HUI high", might closely correspond to our expected HUI 468ish level. The link to Mr. Rosen's editorial is, below……………

www.gold-eagle.com/editorials_05/rosen080506.html

Mr. Rosen suggests that the next big move in the HUI Index begins this month. In the similar previous fractal period, "this move" went almost vertical to bust through the red angled resistance line. That is also what I see transpiring as the explosive move to HUI 468ish that lies on our doorstep.

Before I say my thanks to all, I'd like to pass on a bit of news regarding my editorials. Future editorials will likely reflect a bit of a group effort as two of my friends join me to contribute in the writing. Both of these gentlemen have a deep understanding of the Precious Metals markets as well as a grasp of the macro issues involved across all economic lines. Both have a high degree of understanding in the areas of charting and trading/ investing.

The link for the Gold-Eagle Forum can be found, below

www.gold-eagle.com/cgi-bin/gn/get/forum.html

Again, I'd like to thank all of the posters at the Gold-Eagle Forum for their daily input. This thank you is especially extended to TQ and to Grininbarrett. Special thanks go to Dr. Vronsky and Westerman for creating the Gold-Eagle site and for editing my work. A very special "Congratulations" go out to Dr. Vronsky and Westerman after Gold-Eagle.com saw its hit counter ring up 237 million this past week.

Thanks also go out to CaptainHook and David Petch of TreasureChests since I have learned so much from them. They can be found at www.treasurechests.info/index.php

There are many great editorials that can be found on the Gold-Eagle site at the following link. www.gold-eagle.com/research/petchndx.html

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