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.