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A Quick Peek at the Gold Sector
posted Feb 12, 2006 at 01:21PM

Bullion Daily

HUI Daily

HUI/Gold Ratio

Web Site Traffic for 321gold

Clicking the above shows that traffic at this popular gold site hit a level corrsponding to the last cycle's peak.


As has been the case for awhile the gold sector is due for some technical consolidation/correction. Fundamentally there is no change for gold; indeed the deficit numbers show that there remains plenty to be worried about.

Technically there is still a case that gold can reverse here and make a move to the measured move objective of $620 on the monthly chart.

My own "opinion", especially after looking at web-site traffic, is that enthusiasm for the sector has reached some kind of peak, and we are entering a period of correcting prices.

The big question mark is the nature of the correction. In the first major leg, corrections had become almost predictable affairs. Wait for the weekly stochastic brothers to bottom out. Wait for some positive divergences on daily plot, as well as positive divergences in stocks. Wait until charts were at or at a discount to 200 day moving averages. Buy, wait a few weeks and presto you were sitting on nicely profitable positions.

But gold's outperformance against all currencies give the strongest proof that we are in a new phase of a gold bull market and the old parameters may not apply.

Remember we are in a gold environment that I have no personal experience in, so I am feeling my way out there.

So there are some options. One the first leg of this new phase is still underway. One would expect the HUI to correct to its trend-line support and then move on to new highs

The other option is that the first impulsive leg is complete and that a correction dealing with the entire move since last May is upon us. In Elliot Wave terms we are talking about a wave 2 type affair. Wave 2 can be very serious and correct big chunks of an advance.

The thing about Elliot Wave for most people though,is that you can make it say whatever you want it to say.

My thinking is that if we are in a Phase II, or Wave 3 type affair then corrections will be shallower than expected, and never go down as much as "timers" would like. Surprises will be to the upside.

I think if you buy anywhere along this period of weakness, with an intention to hold, then the subsequent impulsive leg up will put you in good stead, at some point in the future.

Now "timing" is difficult but that doesn't mean you can't try to do it. Getting a good entry point is probably the most important criteria for a good trade.

I would wait until the vehicle you are looking at comes back to some kind of clear support metric. A move below and then back above that swing line is usually a good buy signal. Everyone has their own set of tactics here.

I would use tight stops. My philosophy is that it doesn't matter if you eat a few commisions: it is better to get that good entry point that allows you more options later on.

Good trading

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