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Gold Stocks: Buyer Beware?
What if you accepted (if only for a minute) the idea that markets are not random, but patterned?
The Elliott Wave Principle teaches that financial markets are not random, but patterned. This is not a novel idea to most people who have studied market charts long enough. But even if you are a proponent of the “random walk” theory, let’s – for now – leave alone the debate about “random” vs. “patterned" and focus instead on the benefits of accepting (if only for a minute) the idea that markets are indeed patterned.
The benefits are numerous and obvious. The main one has to be this: If markets are patterned, then once you learn to recognize on a chart where you are within a particular pattern, you can forecast what part of the pattern (i.e., what trend) comes next. And that comes in handy when you're trading.
The Wave Principle describes thirteen known patterns that ALL market action fits into. Let’s focus on one of them: the ending diagonal triangle. Here 's what Prechter and Frost’s Elliott Wave Principle – Key to Market Behavior says about them in Chapter 1:
"An ending diagonal is a special type of wave that occurs primarily in the fifth wave position at times when the preceding move has gone 'too far too fast,' as Elliott put it. In all cases, they are found at the termination points of larger patterns, indicating exhaustion of the larger movement."
You get a free copy of Elliott Wave Principle – Key to Market Behavior with a subscription to any market-forecasting service by Elliott Wave International, including Prime Stocks Flash.
Many Elliotticians recognize ending diagonal triangles as the pattern of opportunity; this is its idealized diagram in bull and bear markets:
Now, let's try and put this knowledge into practice. Take a look at this chart of HUI, the AMEX Gold BUGS Index, which is comprised of 15 stocks of the largest U.S. gold-mining firms. This very chart (except fully-labeled with Elliott wave symbols) was published today (April 17) in the Announcements section of Elliott Wave International's Prime Stocks Flash service:
EWI's Prime Stocks Flash scans thousands of U.S.-traded equities and alerts you by email or phone to potential high-probability trading opportunities. Latest updates also include GOOG and XLE (4/17/2008) and STT and OIH (4/15/2008). Online now.
Besides this chart, Prime Stocks Flash editor Mike Boysen also included three other charts in the April 17th subscriber update: a weekly and a 60-minute chart of HUI and a daily chart of GDX, Market Vectors Gold Miners Exchange Traded Fund.
And guess what -- three of the four charts are showing the same pattern: a completed ending diagonal triangle.
Find out exactly what this development implies for gold stocks – including the likely price targets for the GDX – right now inside the April 17th Prime Stocks Flash updates; online now. If you hold gold stocks or ETFs in your portfolio, you can’t afford to miss this one.