The HUI has been on a trip heading north since it bottomed in mid January 2016. It would be nice to paint a perfect impulse on the way up, but impulse waves would subdivide far better, and not give us what looks like a wave 1 extension. In order for the HUI to head north on a much larger scale, we should get a much bigger correction.
This bullish phase is getting stale as the media keep talking about it. The louder the parrots sing or squawk, the closer we may be at a top or corrective top. In short, I am still looking at this from a “C” wave bull market perspective, until the market tells me otherwise.
Right now this pattern has already started to go a bit sideways, but more is needed to help confirm that the beginning of May 2016, may have been a strong top. The HUI also contains 3-4 open gaps below present prices, which all should get closed off. The only question is when? Gold stocks eventually will have to hit the top trend line again, but the HUI may have already started to roll over. On the way down everybody will be looking for support levels, as that is what we must get to bring on another major leg to the upside.
The problem with the flock or herd type thinking is that they know nothing about “C” wave bull markets, or big bear market rallies. In a bear market rally, or “C” wave bull market, there will be no support level that will work, no matter how hard we try. You can try a 40%, 50%, 60% or even an 80% correction, but the market would end up taking 100% or more.
The 210 price level would be the first important level to crumble, and any other support level will also crumble, if this rally ends up being a fake. If this rally ever returns below from where it started, then the markets will have confirmed that the HUI rally was a fake. At the peak of the gold market in 2011 everybody thought we were in a secular bull market sending gold stocks to the moon, yet they were all proven wrong as the XAU and ABX made a complete 100% retracement of its entire bull market.
Nobody cares to wave count the XAU, as the HUI was far more bullish looking and easier to count out, but it was the XAU that gave the strongest warning that it was on a fake run, which the EWI analysts got right! They warned that the XAU was a fake, but I fought with the wave count anyways, as those choppy and erratic waves serve as a warning, if we are paying attention. There is nothing wrong with trading fake bull markets as you can always turn profits from a fake market into real cash!
If I saw this market correct into a decent zigzag and then hold a bottom, then I would turn extremely bullish one more time. Any diagonal 5th wave decline can also cross to new lows with a zigzag, so we can have dual patterns, but with each having a different path.
The gold/hui ratio made gold stocks a bit more expensive, but not by a big number. At about 5.59:1 we are in the middle of the range. The range so far has been 3-10 which makes small shifts hard to judge. If the ratio drops, then gold stocks become expensive when compared to gold., but if the ratio expands, then this indicates that gold stocks are getting cheaper when compared to gold. GDX would work just as well as the HUI would, but a new high and low ratio would have to be researched before we can use it effectively.