In the stock market games the spring rally for gold bugs appears to be ending soon
When it comes to the stock trading game that I have been following and illustrating since the last week of January 2011, I can’t help but be blown away again. I can’t get over how the fibonacci ratios lay bare the secrets of the market.
I believe that it is because the markets are so controlled by trading programs, and I know that they use these signals to initiate buy and sell orders, resulting in a significant flow of money to entry positions or exit from positions. Below, let’s look at the Gold Bug Index in detail. If you double click on the image it will enlarge. 
Charts coutesy of Stockcharts.com
If we take the starting point of the rally at 492.04 and draw a trendline thru 609.22 it acts as support to the top of the first wave to 581.73, and then we have a retracement which is wave 2 to 517.89, but the part that really floors me is how the fibonacci fan lines off of the trendline catch the divergence as a near exact full fib of .618 (the bottom blue line) where without the technicals traders might think the rally was over, but in fact it is just a great entry point if you missed the initial move. The fan lines tell you the trend is still alive.
Then the trend is resumed but now the trendline acts as resistance on the way up. We have just completed a wave 4 retracement and have one more wave up (a wave 5of 3) before the spring rally is over. Then I think we will correct for summer, “sell in May and go away” and that could be a wave 4 back to the 580 area. Wave 4′s always come back to where wave 1 ended, that’s a rule of Elliott Waves. At the end of summer we will resume wave 5 up.
Also notice that all three fibonacci studies converge at a single point, 582 ish, where we are now. Very cool, and where we will be at the end of summer.
Another thing is to look at the orange lines which are the fibonacci retracement lines. If we extrapolate the outcome of the entire move by using the three retracement lines as a best fit on areas of congestion we arrive at a target of 636, which is confirmed by the fan lines as well.
I included the fibonacci arcs to show how the beginning of the rally was at the mid point of other action, that played out from the past. It is amazing how the congestion lines up on these arcs. What they say to me about the future is that it is a clue as to how long it may take in the number of trading sessions while the other fib studies seem to favor pricing targets.
Well that’s all I have to say about that, as Forrest Gump would say. I just wanted to close the loop on the observations of the spring rally in the Gold Bug Index.
This is not a recommendation, just my opinion, because I like to give it and I live in a free country were that is allowed.
Be careful, and remember there is always a correction in the summer months.
Hoping you prosper, over and out.
