This article was published for
the benefit of subscribers on November 29th, 2011. This will be one of the
last times I mention the Contracting Fibonacci Spiral the markets are trapped
in for at least the next 12 months. After the top is in place, then I will
post, but until then, future analysis will be kept to indices at hand.
Christmas is in the air, with
festivities of Ramadan and the Festival of Lights all culturally intertwining
to form a more current version of celebration, as all traditions of the past
have formed. Here in Winnipeg, the housing prices finally appear to have
topped out, with no visible cutbacks on spending. There is a lot of money in
this city...but on the other side, there are those that are barely getting
by. This is the most rapidly growing economic group by far. In the past,
there was religious discrimination, racial discrimination, sexual orientation
and now the latest, economic discrimination.
Under principles of democracy,
the majority rule...however, in the case of economics, try pulling the loaf
of bread out of an ultra wealthy individual's hand and things change quite
dramatically. Economic rules quietly have been written for the rich and elite
who have available loop holes to hide money. Income can be next to nothing,
but they get their profits from dividends, share options, capital gains etc.
Capital gains are taxed at a lower level in order to try and promote investment
into the economy. This makes sense, but up here in Canada when our
Progressive Conservative party seeks re-election, they will likely be booted
out and replaced with the New Democrats.
Change is always good, but
money can quickly dry up and raising taxes slows down economic growth even
more. Factor in Peak Oil and an overall dramatic reduction in buying power
due to transportation cost and this translates into people spending more time
at home with family and one thing not discussed much...access to drugs. The
coming change is going to be culture shock for most, especially since the
nuclear family concept has literally blown up in North America. As I
mentioned before, deep religious sects will thrive because of their
values...let us hope that this is accomplished with peace and harmony...human
kind never learns from history so do I really do not expect such a
"lollipops and rainbows" scenario.
Aaron Russo had a movie
released shortly near his death titled "From Freedom to Fascism".
When the majority revolt against the rich because of monetary disparity, the
military and police systems are designed to keep things peaceful. Tell me
anytime a riot is done peacefully...emotions are bottled up and all it takes
is one act of violence to spark a "mob mentality". We literally
could see the US and Canada become somewhat Police states over the coming few
decades if things are not handles properly.
That brings us to analysis of
the HUI...one place where money is to be made in 2012. The Contracting
Fibonacci Spiral the markets are trapped in spanned 34, 21, 13 and 8 years to
a tee, each following the Golden Ratio to within 4% of time since 1932...so
it would really be uncommon or run against the fabric of human nature and the
Universe for this to be altered. I am going to start exploring the
Contracting Fibonacci Spiral by looking at different transformations using
square roots and in various other forms to see if this cycle runs in a
transformed state.
AMEX Gold BUGS Index
The daily chart of the Gold
Miners Bullish Percentage Index (BPGDM) is shown below, with the HUI denoted
in green. The ratio peaked in mid-November and since has declined to below
40, the range which often indicates a bottom. Full stochastics 1, 2 and 3 are
shown below in order of descent, with the %K beneath the %D in 1 and above
the %D in 2 and 3....notice the %K in stochastic 2 curling down though.
Extrapolation of the %K trend in stochastics 1 and 2 suggest that another
7-10 trading days of sideways to downward price action should be expected.
Figure 1
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The daily chart of the HUI is
shown below, with upper 34 MA Bollinger band still rising, suggestive that
further sideways to downward price action is probable. The lower 21 MA
Bollinger band has parted company from the recent decline, suggestive that a
bottom may be either in the process of forming or that a mere pause is
underway before declining lower. 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 that
weakness is likely to persist for at least another 7-10 trading days...a
sharp reversal could occur at this point in time, but has a low probability
of occurrence. It is starting to appear that weakness in the HUI will persist
until mid-Decemberish before rising till early January and then having a
final leg down into mid to late January 2012. Subsequently, the HUI should
remain in a powerful uptrend for the remainder of 2012.
Figure 2
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The weekly chart of the HUI is
shown below, with all three upper Bollinger bands in close proximity to each
other; lower Bollinger bands are not as tight as their upper counterparts,
but nonetheless, are defining the sideways price action of the HUI over the
course of the past 14 months...a breakout to the upside or downside is
inevitable. Full stochastics 1, 2 and 3 are shown below in order of descent,
with the %K beneath the %D in all three instances. Examination of stochastic
2 (lower low) to the HUI from early 2010 till the recent low and the HUI
(higher low) formed a positive reversal, which has an upside objective target
of 675. The time frame from 2006 till present has an inverted head and
shoulders pattern, which has an upside price objective of 1000-1050.
Stretching into the field of technical analysis has nothing but upside price
objectives for the HUI at present. Based upon positioning of the %K in
stochastics 1 and 2, do not expect to see the HUI rally anytime before early
to mid-January 2012.
Figure 3
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The monthly chart of the Hui
is shown below, with all three upper Bollinger bands above the HUI. The lower
21 and 34 MA Bollinger bands continue to ascend and if things go as expected,
the lower 21 MA Bollinger band is set to approach the index price sometime
near February 2012, which would see it curl over. Full stochastics 1, 2 and 3
are shown below in order of descent, with the %K beneath the %D in 1 and
above %D in 2 and 3. The bull market in the HUI has been underway for some 10
plus years so stochastics are rather stretched at the moment. Examination of
the %K in stochastic 3 relative to the %D suggests that there is no chance of
a top for at least 12 months out.
Figure 4
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The mid-term Elliott Wave
count of the HUI is shown below, with the thought pattern forming denoted in
green. At present, wave [c].C is either complete or still has further
sideways price action. Wave C is taking form of a terminal impulse (triangle)
within a flat structure. I have the sideways action of the HUI ending at the
end of December, but it easily could go sideways into mid to late January
2012 before breaking out...this would see wave (XX) complete, with wave (Z)
set to ascend for at least 10-12 months. The HUI is sitting within quadruple
top formation...every time another top and bottom are added to this sort of
sideways price action the power of the breakout and upside price objective
increases.
Figure 5
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The long-term Elliott Wave
count of the HUI is shown below, with wave (XX) thought to be forming at
present. I should note that wave f can also be labelled as w, wave [A] as x
and wave y underway at present. Under either scenario, there is an important
top due in late 2012/early 2013 that will see overlap with wave [A].g...likely
near the top of the range, but still, this implies at least a 50% correction
if the HUI makes it to the 1000-1050 area as expected.
Figure 6
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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. At present, the ratio has been in a range between 0.6
and 0.9, indicating a floor is in place for the markets...a decline to 0.5 or
lower would be an indication of a top. For this chart and this chart only,
the %K above the %D is a sign of strength in the stock market and a move
beneath is a sign of weakness. At present, the %K is above the %D, indicating
general weakness in the broad stock market indices.
Figure 7
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The daily chart of the S&P
500 Index is shown below, with upper Bollinger bands well above the index,
while all three lower Bollinger bands are beneath the index, suggestive that
a bottom of some Degree was put in place. The upper 21 MA Bollinger band
recently curled down, suggestive that a bottom was put in place. Upper 34 and
55 MA Bollinger bands are still well above the index and will require at
least 4-6 weeks of time before there is a contraction in volatility as noted
by upper and lower Bollinger bands approaching each other. 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 (note how it is rolling over though).
Extrapolation of the %K trend in stochastics 1 and 2 suggest at least 4-6
weeks of time before a bottom is put in place. So again, everything is
pointing towards a bottom no earlier than the end of December (Orthodox low
(higher low)) and no later than mid-February...it all depends how everything
pans out.
Figure 8
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The weekly chart of the
S&P 500 Index is shown below, with upper 34 and 55 MA Bollinger bands
above the index, while all there lower Bollinger bands are in close proximity
to each other beneath the index. What makes this setup different from the
2008 decline when Bollinger bands were in a similar setup?...Lower 21 and 34
MA Bollinger bands are near the lower end of their range, instead of being
near the upper portion. Full stochastics 1, 2 and 3 are shown below in order
of descent, with the %K above the %D in 1 and beneath the %D in 2 and 3. When
the %K in stochastic 2 crosses above the %D in 3, it will generate a buy
signal on the weekly chart...this is not likely to occur before mid to late
January.
Figure 9
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The monthly chart of the
S&P 500 Index is shown below, with lower 34 and MA Bollinger bands in
close proximity to the 55 MA Bollinger band, unlike years 2000 and
2008...this suggests that a top is not likely to be put in place until later
in 2012/early 2013. Full stochastics 1, 2 and 3 are shown below in order of
descent, with the %K beneath the %D in 1 and above the %D in 2 and 3.
Extrapolation of the %K trend in stochastic 2 suggests that a top is not
likely to be put in place until late 2012/early 2013.
Figure 10
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The mid-term Elliott Wave
count of the S&P 500 Index is shown below, with wave B either complete or
still forming. It is also possible to label this pattern with wave A.(XX) as
W.(XX), wave X.(XX) topping out in mid November, with wave Y.(XX) forming. I
know the rules that wave B is supposed to take an equivalent or longer period
of time than wave B, which is why I have wave B still listed as underway at
present. The count shown below, would have wave B complete no earlier than
mid-December, with wave C.(XX) to follow. This would take the S&P into
late January/early February before bottoming. One hunch is that the HUI will
start advancing in advance of the broad stock market indices, so watch
carefully how this unfolds. Once wave (XX) completes, then wave (Z) should
carry the S&P 500 Index up to at least the 1500-1550 level, potentially
even to 1600-1650 in late 2012/early 2013...all based on the US Dollar Index
set to decline for most of 2012 and into early 2013. Once a top is put in
place for the broad stock market indices, the correction from 2013 into
early/mid 2014 will be brutal, with a MINIMUM of a 40-50% correction. The
Contracting Fibonacci Spiral the markets are trapped in at the moment has had
every signature date have at least a 40-50% correction...the length of
corrections that follow are not determined by this Cycle (note the 1987
correction and how rapidly things picked up after that) so it is not
something to bet against.
Figure 11
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The long-term Elliott Wave
count of the S&P 500 Index is shown below, with wave (XX).[B]c thought to
be forming at present. Once complete, wave (Z).[B] should rise to take the
S&P at least to the former highs of 2000 and 2008, likely higher before
topping out. Once complete, wave [C].c should see a 50% retracement of the
top value...in other words, a top of 1700 would see a low near 800-850 at
some point in late 2013/early 2014.
Figure 12
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Well, that is all for
today...hopefully this helps to paint a picture of where things are going.
Yesterday a subscriber asked me to look at JJG, or Dow Jones Grains Total
Return Sub Index, so the daily chart is presented below. The upper 21 MA
Bollinger band just curled down, suggestive that a bottom of some Degree was
put in place, but not yet complete. When the upper 34 MA Bollinger band (red)
curls down, it will indicate a bottom and the pattern is complete. The index
had price action outside the lower 34 MA Bollinger band (red), indicating an
oversold condition is developing...this is also supported by the lower 21 MA
Bollinger band falling beneath the 34 MA Bollinger band. 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 trend in stochastics 1 and 2
suggest that a true bottom will not be put in place until at least the 2nd or
3rd week of December. Note that the lows may have been put in place, but
sideways price action should persist until at least mid-December, potentially
until near the end of the month.
Figure 13
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Okay...this was a rather HUGE
update, so have a good one and back tomorrow with an update of the US Dollar
Index.