The recent correction in gold stocks has shot down the long term Elliott pattern proposed here several times. Wave 3 is not underway; but rather the chart suggests we are in a multi-year wave 2 pattern. Here is the chart of the $HUI in all its (now) mis-labeled glory. Whereas “proposed wave 3” looked to be in progress, unfortunately (for gold bulls), the chart is still somewhere in the wave 2 correction. By all logical accounts, Wave III is still in progress. Note that the low made last week has not breached the lows made throughout the wave 2 correction. A viscous correction? Yes. The end of the bull market? No. Remember, if the daily market action can spoil your day, your commitments are too great.
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If you need confirmation that the bull market in gold stocks is not over, look at market leader Agnico Eagle Mines Ltd. (AEM). Here /share was and is a line of demarcation which was not breached. As the HUI bottomed last week, AEM actually gained in the weekly market action. Now there looks to be minor resistance around the /share level.
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Here is a shorter term chart of the $HUI. Some resistance is expected around the 385 level.
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The emerging market ETF may be worth a short term play on a correction of the in progress downtrend. Here /share is a line of demarcation, and .50 looks to be a good stop out point. Short term, the 40 September calls look like a good risk to reward ratio.
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Recent history has shown the week before Labor Day to be a quiet one in terms of trading volumes and benign market action. With low volumes and a lot of hope still in the market, I expect the in-progress bounce to continue. But it would not be wise to forget that the S&P 500 is in a long term downtrend; and this is best illustrated by the following chart showing that since October, it has been a series of lower highs and lower lows.
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