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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
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
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
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
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
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
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
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
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
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
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
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
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
Okay...this was a rather HUGE update,
so have a good one and back tomorrow with an update of the US Dollar Index.
David Petch
Treasure
Chests.com
Treasure Chests
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