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A Long Term Look at Gold Stocks
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One of the tools I use in forecasting is the Elliott Wave theory - this, coupled with indicators in sentiment and momentum, along with measuring the disconnect between fundamentals and reality, allow me to get a clearer picture of where the market is today and where it is most probably headed tomorrow.
The two highest probability wave counts for the HUI Index both indicate at least a near term decline in the price of gold stocks, both also indicate that gold should begin the largest bulk of its bull market within the next 24 months.
If the first scenario plays out (which in the context of a deflationary period is the most probable), the HUI will make a much lower-low than where it stands today. If the second scenario plays out, the HUI will make a lower low, but will resume a bull market much sooner, and start from a much higher point.
Scenario I
Link to Chart: http://3.bp.blogspot.com/_t4zzpUL3Cnk/S6zV51lJnhI/AAAAAAAAAcE/uwstiJvdPq4/s1600/HUI+Index+long+term+wave+counts.png
Scenario II
Link to Chart: http://4.bp.blogspot.com/_t4zzpUL3Cnk/S6zWFY7ItPI/AAAAAAAAAcM/16hDkgQS1-I/s1600/HUI+Alternate+Count+Long+Term+copy.png
As for the rest of the markets, the nearer term pictures is not as clear as the US Dollar and precious metals. The move upward from March 2009, however, does not look impulsive unless one stretches to impose an impulsive structure onto them, and as such the primary degree trend still appears to be down.
How long it will take to hit the top and resume the long term bear market is not entirely clear, however with more retail investors piling onto this rally every day, the safest bet is less time than more.
Have a great weekend!
J. Derek Blain
March 26, 2010
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Derek Blain has been trading since the day he was old enough to open his first brokerage account.
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