Tuesday, August 28, 2007

HUI is in impulsive down wave

My view is that the HUI chart is currently progressing in a impulsive down wave. All the action at the end of each stick down is essentially a bear flag. If you are a good trader you can take advantage of those flags volatility. I really don't know where this phase will terminate. It could be close in time. I have drawn some boxes showing a interesting factoid about the current correction and that of the previous cycle. You will note that price action has stayed in the upper half of the trading range for most of this cycle. The implication is that the action is distribution. It seems likely to this trader that there will be occasions to accumulate this sector in the lower box drawn on my chart. The more important question I have is whether there will be overlap with the previous trading range. Overlap suggests higher order wave action, which will get me to consider alternative wave counts.

S.M. Himes

Saturday, August 25, 2007

The Gold bull market will come into question

The gold bull market may come into question in the weeks ahead ironically as investors flee to the "safety" of U.S. treasuries. In a liquidty crisis cash is king. I do not intend to present any fundamental or geopolitical views of the credit crisis on this website. There are some very good analyses out there right now that will do that. However, every bull market needs one really good shakeout before the real action gets going. I think many of you will agree that there has not been a real full blown and euphoric bull market in the precious metals yet this cycle. Therefore it follows that the whole of the bull market thus far is only the opening act. In fact it could be argued that there is no bull market yet as prices have not really broken out above and held above the 1980 high.
It has been pointed out here and on other sites that gold has held its 65 week simple moving average during this entire bull market. It does not necessarily follow however, that that will always be the case. Paradigms do shift at times. These paradigm shifts or interruptions in trend are what define the waves of progress. If there was a time for such a "finger of instability" as Ty Andros puts it, then surely this is the time. I include today a chart of the xau/gold ratio as I have done before. A capitulation is clearly in progress. Some have pointed out that the capitulation may have already occured. Perhaps, but something tells me this bottom will require more work. Notice how the chart has made a lower low now. Also notice how the action is below a shallow uptrend that started in 2001. Perhaps derivative exposure is a issue in gold stocks and that is why there appears to be a bear market in gold stocks relative to the metal. I think we as gold stock investors may not fully appreciate what it takes to bring a sector out of a 20+ year bear market. No doubt some compromises and mistakes have been made by companies attempting to ressurect this industry.
In charting you often see price action return to the scene of the crime as they say. Sometimes that takes a long time. Well, I see this ratio returning to the scene of the crime. If the stocks are in a secular bull market then on a price relative basis they need to prove the 2001 low was THE low. When you see this ratio chart bottom near or above that area and the sector begin to move strongly ahead of gold then it's the real deal. This could occur very soon, but a imminent crash is a real possibility. The metal on the other hand is a bit tougher to figure out. I don't think I can predict what will happen with the metal in nominal terms. It seems possible that it will take a retest of its breakout near 500, but maybe not. Ultimately I have to conclude that this whole period of 2001 to 2007 has been a time that gold was sniffing out the underlying problems with our financial system. Now is the time for gold investors to come to terms with why they are involved with this sector in the first place. I find it most appropriate that the ultimate test of gold occurs at a time of its greatest relevance.

Other notes: I setup this blog initially to chart a variety of gold and silver stocks as I thought the next wave was approaching. Most of my charts and notations are now out of date. I think it's appropriate now to look at those charts and see what has happened in terms of conclusions or possibilities that I may have drawn on the charts. In retrospect it seems clear alot of these charts have broken key trend lines and that suggests bearish action in search of a solid bottom. It's natural to expect bullish action in a bull market. As a trader you can define risk best at trendlines so thats where you make your stand. Now that a bearish phase is in force it becomes natural to assume bearish action. That's where we can go wrong. What we have here is a long term cycle asserting its force. The long cycle is demanding resolution of this bull market in its entirety. We should therefore be considering each stock and corresponding chart in terms of what level represents its minimum bull market envelope. I will soon update all the charts. I can tell you from a quick review that many stocks have the potential to go to levels I would have not dreamed of a few months ago. I have to stress its just a potential. We trade with signals not hyperbole. However, if we get a huge washout and capitulation move with major blood in the streets then I will believe its time to just throw money at the sector. On some level risk is mitigated the lower you go.

S.M. Himes

Tuesday, August 21, 2007

Take a hard look at this chart

Theres alot of progress baked into that chart over the last century. Periodically investors should ask the question "is this realistic".

Thursday, August 16, 2007

Volatility Reigns!

Here's a few quick points tonight.

1) xau/gold ratio: It has dipped below .19 and some call that a buy. Maybe it is, maybe it's not. Clearly the chart failed the recent breakout and in classic fashion has started the capitulation run. That cannot be denied. I think I can say for sure now that when this run bottoms it will be THE bottom. At least we know what the market is up to now. Also note that the chart is now officially under trend from the 2001 low. I suspected that might happen and mentioned it in a old post about the ratio. My view is that this episode is analagous to the 2001 bottoming process. This should be our first higher low in the generational bull market. In other words it is the second wave bottom, to be followed by the third wave impulse where all the action will be.

2) VIX: Todays daily vix chart sports a classic gravestone topping candle. These typically appear at maximum fear points where the markets reverse. I am pretty confident a rally is coming off this fear drop today. However, I have a nagging feeling that we haven't really seen the 4 year cycle low let alone the decennial pattern nadir. In terms of timing I expect those in october. So we will just have to see how things develope with the VIX chart in the next two weeks. I will point out that when viewing the VIX chart you should look at daily, weekly, and monthly charts. A monthly outside reversal is a very good indication of a market breadth bottom. We do not have that right now, but it could appear by the end of this month. I do not believe it will however.

3) Wave set and gold stock bottom: Without getting into alot of wave counting, I will just say that I do not believe a full wave set exists yet in this capitulation move such that I can call a bottom. Today was a pretty strong capitulation, but it seems to me it was more of phase I of a cliff dive. I expect a snapback rally now along with the general market that fails in a couple weeks.

4) Get ready! Most important is that now is the time to prepare. The gold sector is near the beginning of the end of this correction. You should now decide how you will deploy your capital and be ready to pull the trigger when the rest of the world declares gold dead. I can't tell you to the day when a low will be, but I know a guy who can.

S.M. Himes

Friday, August 3, 2007

VIX Perspective

Tonight I wanted to put up this long term chart of the VIX. Unfortunately, the chart does not show the 1987 spike which was much higher than any recent levels. For now I think we have to assume a major market bottom will occur with a VIX level in the 40 to 45 area. This has been the pattern in recent years. If our assumption turns out to be wrong, then what clues might we look for in advance? That may be difficult to determine. From a chart standpoint I may be looking for base building in the VIX chart. Notice how that has been working on this current bottom formation. Second, is it possible that a "Bull Market" in volatility could be setting up. Clearly, the last several years have seen a disregard for risk. Perhaps ignorance is bliss , until it's not! Finally, I think its important to point out that a rising trend in volatility does not necessarily imply a declining stock market in terms of nominal price. This can be seen from the late 90s episode of exploding asset prices. From this traders view it's time to sharpen the pencil and be on the lookout for opportunity from the increased volatility.

S.M. Himes

Gold Seasonality

Gold Seasonality
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