Saturday, February 2, 2013

HUI Miner's Index - We've Seen This Before, Too

Last month, when I sensed that gold bugs were about to lose their lunch over the price movement of the US Dollar, I offered a post that should have relieved their anxiety a little. In hindsight it appears my analysis was correct (fortunately).

The present anxiety seems focused on the HUI miner's index and it's frightening under performance of seemingly every asset class and market sector imaginable.

This post will make the case that the HUI is behaving exactly within the historical context of it's bull market and should be relatively near it's ultimate low both in terms of price and timing.

I will admit that the most recent 4 months, in particular, have indeed been agonizing. Painfully agonizing. But viewed in the context of similar HUI setups, such as occurred in January - March 2003, March -May 2005, September 2006 and July 2007, perhaps one can recognize our present situation as something we've not only seen before, but also have every sensible expectation for a bullish resolution.

To get to the specifics, let's look at some weekly charts of the HUI miner's index from the inception of its bull in late 2000, track the major rallies and retracements right up to our current 2013 time frame, and see if my optimism appears justified. Sound good?

OK, let's begin with this weekly chart of HUI which covers the initial window of time (2000 - 2003).

Click on any chart to ENLARGE

What we see is a powerful rally that appreciated from $35.31 to $154.99 (a 339% gain) and then retested a 50% retracement one time.

Our next chart puts the action of latter 2002 through 2005 into view. Using the test of the 50% retracement in the previous chart as our low, we see another powerful rally that yielded a low to peak gain of 179%.

What we also observe is that the 50% retracement of this enormous rally was tested not once, or twice....but three times. We also measure that price rebounded northward off the 50% retracement level to yield a 48.5% gain - which was entirely taken back with a third test of the 50% level.

The next mega rally is seen in the following chart spanning all of 2005 - 2007. 

Again, I have used the 50% retracement level of the previous rally to spot the low of this rally. We see another awesome gain of 142%. We also note some gyrating bounces off the 50% retracement of this rally that provide gains in the neighborhood of 37%. 

Curiously, we also have three tests of the 50% retracement - as we saw in the previous chart. Equally curious is the placement of these tests. The first two are somewhat close together on the left side of the consolidation while the third test is the concluding low. 

Our next chart gives us a clear view of how the HUI behaved in 2007 - 2010. A strong rally off the previous 50% retracement level provides a healthy 82% gain in just under 7 months. 

This rally retests the 50% retracement three times - each 6 weeks apart - then the unthinkable happens.....the bottom falls out and price plummets. The eight year cycle low in gold and the massive deflation occurring in the financial markets inflict massive damage on the mining sector (and every other sector, for that matter).

And of all things, the 50% retracement level that would otherwise be expected to hold price at $400 in the consolidation phase became the exact retracement level that eventually held price from falling much below $167. (Price stopped falling at the 150% level on the chart above).

Well, it's time to look at the most important chart of the day. This is the weekly HUI miner's index from 2008 - 2013.

Wow - look at that 325% gain!

But hold on.......there is that 50% retracement metric again

And the 40%ish rebound that always seems to get taken away just as the bulls think they have it in the bag, again

And three retests, again. Right at the 50% level.

And the curious placement of the retests. The first two on the far left and a final 'blow your mind' at the far right just as the consolidation comes to its exhausting conclusion. 

Hummmmm....... are you thinking what I'm thinking?

Well, in case you are not sure, here is what I am thinking: the HUI has yielded 5 huge rallies during it's bull to date. Each retraced 50% before beginning a new rally, except for the 2008 example which tried to hold the 50% level and failed. Several rallies featured a 'fake out' rebound sporting a gain in the range of 40%. And the final or third retest of the 50% retracement level always located the genesis of the next huge rally. Well, except for 2008, that is.

I really don't think this is 2008 all over again. Not with the world's Central Banks devaluing their currencies as aggressively as they are. And, we are years before gold's next 8 year cycle low is due.

So, I think we are at the tail end of another HUI consolidation that, like all the others, will catapult the miner's index hundreds of percent higher over the next year and begin not too long from now. 

And as I have become fond of saying, it is a bull market, after all.


  1. What about the gold C wave - does it still look normal, bullish and aligned with your expectations?

  2. Goldberg - we are in the 2nd IC, 2nd DC, Day 4 last Friday. Looks exactly as expected.

  3. A great always. Your writing style is second to none. Your posts (and site for that matter) also lack so much of the NOISE prevalent today. Thanks John.

  4. John,

    thanks for posting this ... youre such a wonderful person for taking time out of your schedule to educate us.

  5. John, how many years woudl you consider this current consolidation to be in... the longer the consolidation the stronger the move no>??

  6. Anonymous, Joseph, Tommy and EP - thank you for your gracious comments.

    EP - are you referring to gold's consolidation below it's all-time high
    above $1900 or the HUI consolidation bouncing off the 50% retracement
    level for the third time? In either case, the *conclusion* of either
    consolidation will be measured in months, if not weeks.....certainly
    not years.

  7. EP.. i was referring to the consolidation for the HUI.... 2 years i believe. or close to it. , no?

  8. EP - the HUI miner's index topped just weeks before gold topped in September 2011.
    The consolidation following gold's 2006 C-wave top took 15 months. The consolidation
    following gold's 2008 C-wave top took 18 months. We are now 17 months past gold's
    2011 C-wave top. I have no idea exactly when this consolidation will be completed,
    other than to suggest that it should be relatively soon and will include the miners
    making all-time highs as well.

  9. John, as always, excellent analysis and commentary! Hoping for one more test of the gold low to add more positions.


  10. "I really don't think this is 2008 all over again. "

    hehe, thats what everybody was saying in 2011 after the initial dump and after over and over again, as miners pushed lower and lower.

    Correction in gold down to 1400's would be healthy for this bull, this means 50% retracement would not hold. It is very unusual for ANY assett class to not have a negative year for 12 years straight. 2013 may be the firs one for gold in a decade... and yes, the bull will be still more alive than ever. Small specs will not survive this for sure, they'll puke shares and buy puts at the bottom.

    If 50% on the HUI does not hold, whats the back up plan?

  11. hehe, do you really care about what everybody was saying in 2011?
    I can tell you I could care less. Everybody is usually wrong and
    besides that, the past is past.

    I think if you carefully considered the charts and information in this
    post you would have a clue that following the 2011 parabolic top in gold
    there was no way that miners would be able to keep rising. A 325% gain in
    just under 3 years calls for a breather and a 50% correction - which we got.

    Every other major HUI rally got a 50% correction - why should this rally be
    any different?

    I have no idea what *your* back up plan is, but I wish you well.

    My back up plan is the same as it was in 2008 but with the added twist that
    I will wait even longer to sell so that all of my mining positions return a
    decent return. I will not sell one at a loss. That's it.

  12. John, Another great post. Thanks. Bruce

  13. Something disturbs me, John.

    Maybe you will sort this out:

  14. John, are you Toby Conner?

  15. The spelling is Toby Connor.
    And the answer is least.....sometimes.

  16. The real consideration is not how soon, as it is inevitable, but how long can the Elite Ruling Criminal Class and the Fed, keep the lid on? I have been in and out of PMs since 1964 and AU since 1973. I am 65% of assets in PMs and am betting against the Criminals.
    So hang on to your sox.
    Sic Semper Tyrannis !

  17. John, HUI daily TSI trend line break and cross zero today, bottom is in?

  18. John, I think many here realize that the Goldscents blog is an advertising gimmick for Gary Savage's fee service, so seeing (your?) work reproduced there seems odd and makes me wonder what's going on. It makes me question your credibility, which you probably realize is your only value as a blogger. Any clarification of the relationship?

  19. Anon #1 - yeah, I'm inclined to believe the HUI bottom is in. Doesn't mean I am correct, of course, but the odds look good to me.

    Anon #2 - Gary and I are founding partners of the GoldScents blog. He thought the article was good and asked me if I would post it - so I did. TheDailyCrux is the only publisher I sent the article to and they have had it as their headline article for the past 24 hours or so.

    Your comment about questioning my credibility and suggesting it is my only value as a blogger strikes me as something only an *idiot* would write.

    Please, do not waste another minute reading anything I write. Get yourself a free blog from Google and tell the world what you think but please, do not waste another minute of my time again. Thank you.

  20. Hi John,
    Compliments to you on a great and timely analysis.
    If I may can I pose a few points and ask for your feedback.

    1)In all of your pre-2013 HUI analysis you state what the movement from the prior 50% retracement was to the peak. However in the 2013 analysis your +300% move was from a bottom (-150%) from prior peak. Isnt this distorting the point that you are making and not being consistent...about the 3 times and boom....multi '00s of % move. In actuality, if analysing the 2013 timeframe as per your chart, one could discount the move from mid 2008 (support taken out on 3rd attempt) - to early 2010 when resistance taken out (both at 50% retracement). In effect this removes the effects of the GFC and reduces the consolidation by a year and 10 months. It also reduces the effective upside from the tested 50% retracement to a mere 72% or thereabouts.
    2) Your analysis particularly with regard the current period doesnt allow for the same moves that were experienced in 2008 Hui Index Chart ie. after 3 touches of the 50% retracement then penetration. Another financial crisis ???
    3)I did some quick further study of the charts provided to ascertain the period of resolution of the retracement (using the date once the first attempt had been made)and came up with the following:
    2002 :10 mths; 2005:13mths; 2007:15mths; 2008:7mths (excluding GFC movement); 2013 : 8 mths to date.
    On average we have about 13 mths for resolution of the retracement. Effectively if followed this puts us on the path to further projected gains in another 5 or so months (May-June).
    Like you say we are at the TAIL end of the consolidation but qualified with potential room to wiggle a little bit more.

  21. Liquid Motion - thank you for writing some interesting questions.
    It is always remarkable to me how two people can look at the same
    chart(s) and both see and emphasize different things. And I will
    say that you have indeed succeeded in seeing things in ways that
    simply had not occurred to me.....until I read your thoughts.

    Your measurements appear correct to me and for the most part I think
    I understand what your basic arguments/questions are.

    For starters, when I looked at this HUI secular bull I began not knowing
    what in the world I would find. Which is to say that I honestly had no
    pre-conceived expectations that I tried to somehow curve fit to make a
    good story.

    I am well schooled in gold's secular bull daily and weekly cycles as
    well as the locations of gold's ABCD wave patterns. I believe we are on
    something like the 9th iteration of the ABCD wave pattern currently. So it
    was instinctive for me to simply look at the HUI in a manner similar to gold.

    If gold has had 8 or 9 parabolic C-wave tops, would I find that the HUI had
    8 or 9 major rallies that corresponded exactly with gold's major rallies (C-wave
    tops)? The answer was no. There were only 5.

    So then I thought to see how much each of these major rallies retraced. Kind of
    to my amazement I discovered the answer to be 50% - every single time. The first
    specimen retraced 50% once then the next major rally began. But the following four
    specimens retraced 50% once, then twice and then a third time .... very curious
    I thought. And again, as I can tell you the retracement level of every one of gold's
    C-wave's by heart (sad, but true), this consistency of HUI retracements was really
    remarkable. Gold does not have this particular characteristic .... if anything, it's
    retracements are more in the 61.8% range fairly consistently.

    Back to HUI. In each case, the first 50% retracement reached a lower low than the
    two that followed - thus creating an upward sloping trend line from the lows of
    the first and second retracement low .... and this trend line was then broken by
    the third test of the 50% retracement .... which itself was still making a higher
    low than the first and second retracement lows. This was also curious .... I thought.



  22. But of the 5 major rallies, the only inconsistency of the pattern was the breakdown
    in 2008. In this case, the first, second and third retracement lows did not 'contain'
    the consolidation. The consolidation failed and price plummeted through that support
    trend line. This particular instance meant that the third retest of the 50% retracement
    *would not* be the genesis of the next big rally. Instead, the next big rally would begin
    wherever the low concluded following this failure of the 3 point trend line (Oct `08).

    In this respect, all of the lows used to calculate the parameters of the ensuing big
    rally were indeed the *concluding low of the previous rally*. 4 of 5 times it was the
    50% retracement level of the previous big rally. 1 of 5 times that metric did not spot
    the bottom of the ensuing rally. So regarding your thoughts in 1) above I cannot conceive
    of why I would want to screw around with all your cut and paste ideas relating to 2008.

    Your analysis method does not measure the 5 major rallies from their genesis to their peak.
    Instead, it confuses what really happened with distortion and inconsistency. Rallies
    are measured from beginning low to high. Just because a rally fails does not mean that
    the rally *that follows* is measured differently .... that it is given some kind of
    complicated handicap for calculation due to the preceding failed rally.

    I'm not sure I quite understand your thought in 2) above. Perhaps your point is that
    my thinking does not allow for the current 2013 setup to fail as in 2008? If that is
    your thought then I will tell you that the HUI can trade as low as 385 or thereabouts
    and I believe we are still in good shape .... or put another way .... the succession
    of three 50% retracement lows each making a higher low than the preceding low will
    still be a valid observation consistent with all previous rallies, save the 2008 break
    down. And btw, this current trend line has already been broken (can you say 'time for
    game on')?

    Re: 3) - I personally don't find any compelling information with these considerations.
    What I do find interesting, however, is to note that the 2005 specimen has a 50% Fibonacci
    *time retracement* between the 1st and 3rd retracement lows that nails the top of the
    counter rally. And just as interesting is the observation that this is nearly precisely
    what we see with our current 2013 situation. ie. both 2005 and 2013 three 50% retracement
    levels have the 40%ish fake out rally peak smack in the middle. Hummmm......

    Personally, I think the low for HUI is already in and 99% of traders can't see it. But I
    could be wrong .... and believe me, being wrong happens to me plenty. :-)

    Thanks again for sharing your thoughts.

  23. John,

    I have no quarrel with your analysis however reading yesterday's Financial Times tells me commodity Hedge Funds have been huge position liquidators over the past six months. It will be hards for commodities in general and gold in particular to find a bottom. HUI may anticipate this but the event has to occur to provide true support.

  24. Hi Steve - commodity hedge funds huge liquidators over the past six months? Well, if they bought HUI six months ago they are breaking even today. Who cares?

    If they are now liquidating long positions acquired 4 months ago or less they are taking significant losses in the range of 10-20%. Tisk tisk.

    And if selling long positions acquired 12 months ago they are taking losses upwards of 30%. Triple tisk.

    All this is good news to me and I'm wondering what you see as the catch?

    If these commodity hedge funds were long and recently selling then that means they can now become buyers. And if they were short and recently covering then that means they can now become buyers. Either way, it's great news to know they are losing their positions.

    Steve, the absolutely ideal situation is to be sitting at one end of the spectrum (long) while the other 99 guys are at the other end (selling or covering shorts). At some point the sellers run out of ammo and then there are no sellers left. ONLY BUYERS. And that is exactly where we are right now.

    When all those new potential BUYERS see that the only game left to play that has hugely favorable odds including depressed valuations only seen 7 times in the past 100 years, are the mining sector, the elephants will get their cash out and try to storm the front door - trying to get back into the trade.

    The more elephants the faster the rocket ride for us bulls (ie. supply vs. demand).

    There are so many elephants in the zoo - right now - that if they don't start passing out birth control pills to them, and soon, they may storm the front door and just knock the entire house down.

    And you could buy the miners today for 'peanuts' (couldn't resist).

    I say, the more hedge funds selling the better. And fwiw, hedge funds may use the money of wealthy individuals to do business, but I'm looking at a chart of all kinds of hedge funds over the past 15 years and it shows me that very few outperform the market and all of them have nasty losing years as well.....just like the rest of us.

    1. John,

      I would suspect that they have been long and involved over the last 3-4 years and
      have been liquidating over the past months.

      The Silver and Gold ETF's were good gold and silver as were the commodity hedge hedge funds.

      By most metrics these commodity hedge funds under-performed in 2012 therefore it
      is natural that some liquidation occur...particularly as there are other "hot" markets.

      Bottom line is that I would rather have the commodity hedge funds buying. That's my point

      One to which you apparently disagree. We do agree there is value owning the $HUI here.

  25. Hey Steve - yeah, I don't know what is so magic about commodity hedge funds and their activities. Ever listen to Dennis Gartman on CNBC? He is presented to the public as the King of Commodity traders (hedge funds) and yet his trading record is a big bag of wind. I have long since stopped watching that TV show....maybe it is MSNBC? Anyway, I really don't think these hedge fund people are nearly as smart as one might presume.

    What *does matter* is that someone is buying when everyone is selling. And if everyone is selling price collapses in short order.

    The price of miners generally follows the price of gold. So it would make sense to me that until gold breaks out, hedge funds will not choose to sit still with an investment that appears to be 'dead'.

    The good news, however, is that there are decent clues appearing that validate the notion that HUI buyers are stepping up again. Some of these clues include the capitulation sized selling volume leading up to and including Jan. 28, the minuscule selling volume today and Tuesday of this week and the readings on CMF (10) and MFI (10) which showed significant improvements in money flow / buying pressure despite nearly flat price movement.

    We'll just have to be patient Steve.

  26. Hey John,

    You must have a better data service than I.

    CMF and MFI both require a volume figure for HUI (^Hui,XX:HUI,$Hui) which the Amex exchange does not provide;at least on the three chart services I referenced.

    I have Thursday as a change in a possible trend date... but from lower levels.


  27. Hi Steve - yeah I know about that HUI volume issue.
    Check out

    You could well be correct on your final statement. But I
    don't think the lower levels will be much lower.