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Don't Change the ChannelPMtrader Caveats: If you haven't read, The HUI - A New Bullish Phase, you may wish to read it now, as the discussion below builds directly on its foundations. The author remains long gold and silver. Let's
Dive In: ![]() The blue line above identifies what appears to be the bottom of the most important intermediate term trend channel for the HUI - with about a .75 slope. I.e. Each day, the bottom of the HUI's support value increases by .75 units. The first three green circles - counting from left to right - are what were used to identify the trend channel. The subsequent three green circles represent further tests and refinements of the initial assumption. Now consider the three yellow lines. These represent three of the more important short term and more aggressive trends, within the intermediate channel. Notice that these "steep trends" are short-lived. When the resistance is broken, as shown by the three red circles, a fall to the intermediate trend support - the blue line - invariably results. There are a couple of conclusions to draw from the preceding analysis. First, be aware that steep trends within a bullish move are usually broken, often dramatically - which correspondingly leads to unwarranted pessimism. The latter idea is often concisely referred to as a "headfake" - at least by this author. Second, how should the action in the HUI for this past week be characterized in the context of the intermediate trend? Well ... let's see. In the first three days, we plunged to successfully test the bottom of the "blue" line. This was followed by a single day of consolidation on Thursday. Then on Friday, the HUI put in a strong white candle day - bouncing strongly off of support. Overall, it appears to have been a very constructive week in the HUI, likely setting the foundation for increased strength. So, until the market says otherwise, I for one won't change the channel. Aside: Some may wonder how the three leftmost circles in the plot above, led to a bullish call in and of themselves back in early September. They didn't. There was a more global consideration - they just supplied the details. In fact, this global consideration has already been discussed in a prior editorial - The HUI Spread - So far, So good. October 17, 2004 |