Sunday, June 30, 2013

The HUI Miners Index: Fibonacci Tells of Fortune

I don't know about you, but the Fibonacci mathematical series has always fascinated me. Who would ever have thought that adding 1+1 then 2+1 then 3+2 then 5+3 then 8+5, and so on would generate such a profound explanation of balance and symmetry in nature? I have found so many Fibonacci relationships while studying the price movement of gold over the years that I could not begin to count them all.

Today I decided to apply my passionate appreciation and respect for Fibonacci by asking him to tell me what is going on with the Gold Bugs Mining Index (HUI). And by golly, he told me!

Now you have to realize that Fibonacci speaks using words deeply shrouded  in mystery. As long as you understand this you will hear him talk to you. But if you need to have all your i's dotted and t's crossed so that even a 5 year old could understand what is written, don't expect to hear Fibonacci tell his secrets. He gets easily offended as he knows his mathematical series has explained many of the world's most treasured phenomenon (and he knows you have explained none of them).

Teasing aside, I have prepared 11 charts of the HUI to share with you. First we'll look at a weekly chart with nothing on it except "The Trend Line" (blue). Then we will consider 5 charts of HUI measuring price movement in terms of Fibonacci relationships followed by 5 more charts that look at the movement of time in Fibonacci relationships.

So let's get started with this simple weekly chart dating from 1997 - 2013.

Here is the first chart measuring price movement:

Here we are using the HUI genesis at \$35.31 and the 2008 high of \$519.68. The 2011 high of \$638.59 came in at the 123.6% measurement. The 2008 high at 100% was ever so slightly take out in 2012, as the 2008 low trend line was ever so slightly taken out just days ago. It is very common for large traders to push the crowd just past their nicely drawn trend lines, pick their pockets, then help things get reversed.

This next chart uses the 2002 high (which coincidentally is the 2008 low) as 0% and we measure up to the 2006 high to reach our 100%.

The things that show up on this chart are both interesting and surprising. The 2008 high (nearly) reached the 150% level, as did the 2012 high while the 2011 high (nearly) reached the 200% level.

The following chart is similar in that it uses the same base point of the 2002 high / 2008 low but for the 100% measurement we travel up to the 2011 all-time high.

The next couple of charts will zoom in on the more recent action and see what is going on. First, this daily chart beginning in early 2011.

If we use the low price reached by HUI last week as our base (0%) and measure up to the all-time high attained in September of 2011 at \$638.59 we find that the May 2012 low (which many including myself believe was the beginning of the C-wave save for the weird things that started happening in early December 2012) was a perfect 38.2% of the entire price distance.

And for the final Fibonacci price retracement chart, this uses the same May 2012 low as the basis for 100% and the recent low of last week as 0%.

It kinda goes to show you that even if the Fed, or whoever, manipulates the market, my friend Fibonacci always gets the last word.  :-)

Now let's look at some HUI charts where the Fibonacci relationships of time will be our focus.

Our first chart looks at the origin of the HUI bull and measures time out to the 2008 bottom.

Of particular note is the 38.2% 2003 high, the 50% 2004 high, the (nearly) 138.2% 2011 high and the 150% 2012 high.

Our second time chart considers the 2008 low as 0%, and uses the all-time high of 2011 as the 100% measurement.

Of particular note here is the 38.2% nails the 2009 high and the 161.8% nails our current low.

I asked Fibonacci if he would mind showing off a little for the onlookers. He said that since they were still paying attention and being reverent he would show off, but just a little. I thanked him graciously and asked what he had in mind. So he told me to try this:

OK. Now that was definitely showing off.

Here is another:

By the way, if you think for one second I am making this stuff up you are dead wrong. I meticulously place these measurements on precisely the ultimate day or price point. What happens after that I get no credit for, believe me.

OK - one last chart:

Well, that's it. I asked Fibonacci if we have seen the bottom in the HUI miners index. I knew he wouldn't tell me flat out, but there was a twinkle in his eye that gave me the answer. There should be a twinkle in your eye, too!

Have a great week,

John

1. Dear John,
thank you for your exemplary work and analysis.
Perhaps if time permits, you could use fibonacci and tell forthcoming time of gold and silver.
thanks once again for your time and efforts.
best regards

2. Thanks John,

Thanks for the story! New to me and very interesting. Does Mr. Fibonacci have any insight into the future at all?

TIA!

3. Once again I am keenly interested in your work. But as the questions above suggest, Fibonacci is often clear in retrospect. The trick is to predict the future with it. I think your show-off chart suggests a positive near future for the HUI.

Thanks,

Joe

4. thanks for doing this. at a time when most of us gold holders are greatly in dismay, this is a Ray of hope and understanding.

you have done Gods works here. much more so than any goldman sucks fellows I know. with some reading and work, many can extrapolate from this.

1. Hold on to your rays of hope, but realize they don't offer much support as you tumble down the gold hole.

5. This analysis appears to be highly dependent on the starting data point. It seems that if the the wrong point to start with is chosen, then the resulting prediction would not be correct.

6. I think all for sharing their comments.

I have always found it frustrating when trying to use Fibonacci to predict the future, but have never found it frustrating when trying to explain the past. I wish it were so simple to say, "once we get a 61.8% retracement of the previous rally then we will resume the rally until we reach the 123.6% level which will then be followed by the obligatory retest of the previous 61.8% level that now turns into the 50% time marker for the conclusion of the bull market", and so on.

If it were that easy - using Fibonacci to follow a canned script for 'predicting the future' - then it would not be predicting the future whatsoever. As best I can tell, predicting the future is quite difficult and for myself, anyway, damned near impossible.

However, my point in sharing this information is first to show how all the various key pivot points are not as randomly organized as one may otherwise think. I find that interesting, personally.

Secondly, as so much in nature can be described in terms of Fibonacci relationships it should not be some surprise to discover that mankind also tends to organize its creations - including the stock market - in ways that, at least subconsciously, relate to Fibonacci.

And thirdly, as many humans are indeed consciously aware of Fibonacci in the stock markets, to some extent I imagine these Fibonacci relationships become 'self-fulfilling' prophesies. Therefore, when I shared the 'Fibonacci show off a little for us' chart, my point without directly saying so is that we are likely at a key turning point because there are probably enough people who know what the chart says and who will become convinced to take a new direction in their thinking.

Moving averages on a chart have the same effect on people as my third Fibonacci point. I often amuse myself with looking at charts and guessing how far a particular rally will go before it runs into trouble. Once I spot a key moving average overhead or, God forbid, an imaginary price trend line, that is where I tell myself the rally will hit the wall.

Guess what? I'm usually correct. And the only way in the world I can perform such feats of 'seeing into the future' is that I know everyone else sees what I see and will try to act on it before I do.

7. John, absolutely fabulous analysis. I have never paid much attention to Fibonacci time charts, but your presentation irrefutably demonstrates its value.

8. Really well demonstrated and very interested. i buy in,marc

9. John,

Most of your pupils can draw a gazillion of these lines, once shown how to do it.

The real question is what makes certain lines hold. It is what most folks have no idea about. It is why most retail speculators fail.

It is the most valuable thing in the world.

It is most valuable thing in your life and my life.

It is one thing you can not buy.

It is TIME!

99.99% of so called forecasts do not include time simply because they do not know how to even approach it!!!

In my opinion one can not be really successful until he/she understands and includes time aspect into the analysis.

10. what is the relationship between price of gold & right hand margin of graphs?

11. Anon - the right hand margin of the graphs is the price of the HUI gold miners index.

12. John are you buying with both hands these levels. The rocket is ready to go! Gold 1500 by September!

-My trusty Colt 911-

13. Hi John, Gold looking ready for the next move up! What are your current thoughts on CGR? thanks.

14. Hi John,

After so many false starts, do you think this time is for real?

Thanks,
Fung

15. Fung - Fibonacci gave us the answer to your question 3 weeks ago.