Boxed in

HUI SKI

Not much has happened since my last report. The price has been trapped between $391 and $401 trying to carve a double bottom. A bit lower is the very long term support going back to year 2000 and a bit higher are the SKI indices lined up in a bearish formation. For now, $391 held as the support and it seems it is time to trial the resistance above. I think the next signal should be a 16-20 sell and then to get the bullishness back in play we need to reach $450 by September and challenge the 92-96 index. Practically the price is boxed in and it will need a serious energy to break up or down. The importance of this juncture is obvious, breaking down means violation of ten years old trend, breaking up means a possibility of a true bull or a double 35-39/92-96 buy.

I have added to my positions today at the close in Australia and am now 50% long. Recent low is the stop loss and I will trail it on the way up. If we reach the 92-96 index/echo I will reduce the position back to 25% and wait to see the behaviour around it.  

Results of the poll:

Very interesting results and a bit surprising for me. Pity, only 16 people took the poll out of more than 50 that visited the page. I have no idea if it is of any use but here we go, my interpretation:

Capital deployment
All in		Over 80% very bearish 50%-80% bearish 20%-50% bullish 0%-20% very bullish	37.5%	Bullish
All out		Over 80% very bullish 50%-80% bullish 20%-50% bearish 0%-20% very bearish	18.7%	Very bearish
Partially in		Fuel for bulls and bears	43.7%
Overall				Mildly bearish
Sentiment
We will go up (we bottomed)	Over 80% bearish 50%-80% neutral/bearish 20%-50% neutral/bullish 0%-20% bullish		62.5%	Neutral/bearish
We will go down (we didn’t bottom)	Over 80% bullish 50%-80% neutral/bullish 20%-50% neutral/bearish 0%-20% bearish		18.7%	bearish
Don’t know	Fuel for bulls and bears		18.7%
Overall				Bearish
Other
81.2% people already have some kind of a position. Seems high.				Negative
Only 60% of those who are sure that we have bottomed are   fully invested. The wall of worry?				Positive
50% of those who are not sure what is happening already have some kind of a position. Sign of fear of missing?				Mildly negative
There are three times more people who think market is going to rally than people who think it is going to drop				Negative
There are two times more people who are ‘all in’ than ‘all   out’				Negative
Only 20% took the poll. Absence of interest...considering the importance of this juncture this is probably positive				Positive

All together it seems more negative than positive. The encouraging thing is that people are under-invested compared to the quite predominant belief that we have bottomed. Could be interpreted as a wall of worry. The rest doesn't seem encouraging, over 80% already have a position including 50% of those who have no firm opinion on the current market state. Very easy target for strong hands. Would be interesting to see what is the average exposure of those who are in the market. There are three times more people who believe that market is going up then down. And one more thing, the most interesting, the number of traders that think we haven't bottomed and therefore have no position is ZERO. Again, seems negative but...let's just wait and see what happens...

Good luck to all.

IS the bottom already in?

Let's examine my favourite HUI chart today and show power of the SKI indices in conjunction with some traditional TA.
Here is the long term chart of HUI with some traditional trend lines mixed in. The two elements to concentrate on are the SKI 884 index (purple) and the entire bull market trend line going back to year 2000 bottom (turquoise line).
On the left side of the chart you can see the bottoming pattern of the 2008. I wrote a lot about it while it was happening pointing out that what you see there is the 884 index echoing the exact low of 2005 and the price action that bottoms at almost the exact day of the echoed bottom. Powerful stuff, isn't it? From this fact alone I drew the conclusion that the 884 index in this case was telling us that it is the line between the bull and the bear market. The other thing that we see in this single picture is the rally that ensued after this point, the 884 index rally and the real price rally. The 884 index rally is not just some rally. The first year of it is the echo of the true bull rally of 2005/06, then the echo of 2006/07 consolidation and after that the rally out of the Aug 2007 bottom into the Mar 2008 top. This period shows us how the price action after 2008 bottom compares with the price action from 2005-2008. Pretty damn good, I would say, and pretty damn similar too. It strikes me that the length of these two events are almost the same, 711 days the 'original' and 719 days the 'copy'!

Now, concentrate on the other important element of this picture, the turquoise line that represents the up trend going back to year 2000 low. The first touch of this line, the one preceding the Oct low represents the life run low. We all remember, and can see, what happened after it but I want you to concentrate on what happened in the weeks following the October low. After the price recovered from the abyss of the October carnage it hadn't tested the bottom again but rather it tested the life run low instead and it did it three times! I also wrote about this while it was happening and concluded that this was telling us that the life run low was for real and because it was coinciding with the exact support line from the beginning of the bull market we can tell that this is the most important trend line of the entire bull. If we accept this and the same thing for the 884 and look back to the picture it is not surprising to see that the 884 is actually oscillating around this uptrend line. Uncanny, isn't it?

Let's do some cycle work now. The bottom of 2008 happened close to 884 days after the bottom of 2005. The recent bottom of May 2012 happened almost exactly at the 884 cycle day from the bottom of 2008. What was the SKI structure at the time of the 2008 low? The price was in between the  purple index (884) and the green index (663). The 663 index is the long term inverted SKI index signalling a support when the price is bellow it (pandan to 16-20). That means, in 2008, the price approached the long term trend index (884) while it was on the shorter term support (663). It is exactly the same constellation today. We are on the shorter term support (663 buy) while we are approaching the very long term trend zone (884). On the top of this it is all happening above and close to the major trend line going back to the very root of this bull market. So, is this an important juncture or what? You bet it is! It is mega important.

Based on the cycle work we might say that there is a possibility that the May low was the bottom and that we are now in a new cycle. If that is true maybe it is not really smart to expect the May low to be violated (as I did yesterday). Maybe the better conclusion is to say that the kind of exaggeration on the sell side that happened after the life run low shouldn't happen again and that the price action is telling us that the gold market today is much stronger than it was in September 2008. The thing that ruins this idea for me is the state of the SP500 (on important sell) and the dollar  which is on a true bull buy signal. So, I still haven't made up my mind what is happening here but here is what I am going to do. If this intra day reversal gets some traction tomorrow I will consider the May was the low and consequently I will put the stop on all my trades at that level and will add on red days until I am fully invested. If we keep going down I will keep my current position without a stop and will be adding on strong down days below HUI 370 till I am fully invested. In the first case the trade should last at least 710 trading days, the same as two previous cycles. In the second case thou, I would consider the trade medium term and sell it when it faces the 92-96 resistance on the way up. I will re initiate the position after I have enough evidence that long term trend line is holding again.

I brought my position today to 25% long on opening in Australia. My feeling today is that if this setup is going to fail it shouldn't happen here. Maybe September is better time when the price meets the 92-96 resistance and everyone is complacent again.

For the end and some fun I would like you to take part in the poll at the top of this page. What do you think, is the bottom in? I will keep the poll results for everyone to be able to see.

HUI SKI

The HUI has been in a correction mode since the Sep 2011 and it is practically in a bear market since Feb/Mar 2012 when it double sold 92-96 and 35-39 index while breaking the neckline of the big head and shoulder top that had developed since Oct 2010. The measured move for this breakdown was around 390, the 50% Fibonacci for entire run from 2008 low to 2011 high was 391 and the long term support lines are kicking in between 360 and 380. I think that some kind of significant bottom is going to be made in the next couple of weeks, maximum two months. I will be accumulating every time the HUI goes bellow 370. It would be ideal to breach briefly 350 and if it can go as far as 336 I will be adding positions that I will try to keep for years to come. 

HUI TRADITIONAL - weekly

The whole 2008 correction took 31 weeks to transpire. From the 2011 top to 2012 bottom current correction has taken 36 weeks. If we breach the May low it will be much more than that so the time component is probably satisfied. What is not satisfied is probably psychological component because we haven't seen breach of the trend line and run of stops to create panic. I think taking out the May lows should do it, that is why I am looking for 350, maybe even 330.

HUI SKI - long term

You can see clearly this pretty good support between 330-350. Pay attention to the pink index, the 884, that is the one that gave a crucial support at 2008 bottom and never been breached since then. I declared it, at that time, to be the line in sand between the bull and the bear and I think it still is.

GLD SKI

The 92-96 proved three times that it is a strong resistance. That is a bearish behaviour. It is on the same kind of long term bearish sell signals as the HUI but it also, is on a short term double 16-20 and 35-39 buy signal. It has happened above the long term support line which is encouraging but I give it a 40% chance to hold. The 2008 disaster has happened on the series of  failed true 16-20 buy signals and that has become a blueprint of this gold bull market in the last couple of years, serious declines start with failed true 16-20 buys. The very long term support lies around 125. Is there anyone expecting it to go that far? I don't know but I will be buying from around 135, if and when.

SLV SKI

Very similar to GLD. If it fails here the first stop is 23.50 and if it overshoots then 20. At twenty I am backing up the truck.

UUP SKI - dollar long

This chart is the most important and the most telling at this juncture. Over the last two years UUP has developed a huge inverse head and shoulders with the neckline at exactly current level 23. It is on a TRUE BULL signal since the end of May and now it is at a crucial juncture, if it goes up it will break out with the target at 25, if it goes down it will create a double sell 16-20 and 35-39 which could be a sign of a top. I think it is 60% chance of breaking up.

S&P 500 

After a decent rally since the end of 2011 if has double sold 35-39 and 92-96 and then had two failed true bull signals. The same as failed 16-20 buys have been characteristic of bottoms dropping out  the series of failed true bull signals have been characteristic of topping patterns. Remember July of 2008 and failed HUI true bull that marked the secondary top and the start of relentless fall. This chart is not looking good.

Aussie Gold

Very similar to SLV except the 35-39 didn't even buy. It seems like it is already failing. The one thing that is different to HUI is that Aussie gold peaked in Nov 2010 and is practically been in correction since then. It has topped first and I expect it to bottom before others do. I will start buying 25% position on brigh red days in coming weeks.