Update of the HUI/AMEX Gold BUGS Index by David Petch posted at savehaven.com
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The star performers for the next 2 ½ to 3 years are going to be the junior producing gold companies. The big companies are going to go bankrupt in the coming decade unless they replace their deposits. The cheapest way to go about such a task is to simply buy out junior companies that are producing. As many have likely noticed, many of the microcaps have not even participated in the HUI advance the past 8 months. Some gold stocks have doubled and may see partial retracements, but that is part of the normal progression of a bull market. As you will see in the XOI update, it too has corrected to the downside and likely will start its wave [3] around the time the HUI starts its wave III. Figure 1
A purple line hugging the HUI from May 2005 until present denotes the parabolic move. The recent decline to 332 has brought the index dangerously close to the parabolic support line. An inevitable breach of the parabolic trend line will result in a decline that should see a move back down to 280-300. Given the recent state of the HUI, I would avoid adding to further positions at this point in time. If my count is wrong and the HUI jumps up to 400, then the ultimate point of the parabola would be reached with a sharper decline to follow. Lines on the right hand side represent Fibonacci price projections based upon wave advances projected off of subsequent lows. Areas of line overlap are Fibonacci clusters, which represent important support/resistance levels. The 335 level was the first support level, which is now resistance. The next strong support level lies around 290-292.
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