Elastic Bands And The Fibonacci Principle Of “1” Applied To The HUI
The Wisdom of the Golden Ratio and Fibonacci Models Applied
To The HUI
For those of you who read my
recent essay on how the Fibonacci principle of “1”, or equality, has and will in
all likelihood continue to characterize the mathematical framework gold will adhere to in
it’s advance over the coming years, this piece will simply be an extension of the
same conceptual paradigm, as applied to the Gold Bugs Index (HUI). The purpose of this
exercise is to establish a reasonably accurate conceptual road map, as it pertains to the
future growth prospects of un-hedged gold and silver mining companies, which will enable
the average investor to define his or her expectations as to an eventual long-term growth
target for the HUI.
To begin, it is important for
you to come to a basic understanding of a complex mathematical model. This model, known as
the basic “Golden Ratio”, has been the subject of extensive research amongst
Fibonacci aficionados. The most applicable model that has been put forth to date, as it
applies to what I have observed as the HUI’s ‘harmonic rhythm’ comes from
R. A. Dunlap, and a basic overview of his work can be found at the website attached. http://www.mcs.surrey.ac.uk/Personal/R.Knott/Fibonacci/fibFormulae.html#basicgs
What I will be attempting to
perform in this essay, is to construct a basic mathematical model, which can be used to
measure and project the harmonic characteristics of the HUI, as it pertains to price
behaviour, based on a derivation of various understandings found in Dunlap’s in
model. Or in other words, I am going to simplify a complex Fibonacci model, into a much
simpler and more easily understandable formula, which will make it functional, to the
average investor.
As you may know, one of my
primary philosophies in life is to reduce complex matters to their simple forms.
Certainly, applying the full spectrum of Fibonacci’s genius to the task at hand would
not conform to the primary purpose of this essay, so we will limit the mathematical
component of this exercise, as it applies to Fibonacci theory, to focusing on what we can
learn about the future growth prospects of the HUI, by endeavouring to define it’s
past and future price patterns around his most primary understanding. That understanding
is premised in the observation that certain dynamic phenomena within dynamic environments
in nature, may behave within a definitional framework such that an action of certain
phenomena, within certain dynamic environments, may be met with at least an equal
reaction. A very straightforward example of this as it applies to a market, would be the
movement of a security’s price from $5 to $10 over a 3 year period, and an ensuing
correction from $10 right back down to $5, three years later. As you can see, this example
is equal in all dimensions, including time, and will give you a basis to work from as we
now delve into the HUI’s past and expected future price behaviour, based on this very
simple understanding Fibonacci has helped us develop.
Within the phrase ‘price
behaviour’, the word behaviour should give one a clue to the fact that much of the
price volatility within markets is a derivative of human emotion. In fact, the great gift
that Fibonacci gave us in his observations and theories was a mathematical measure of
human emotion, or the nature of human behaviour, as it applies to the dynamics of markets.
The technical term for this phenomenon is ‘harmonics’ and when one is able to
measure the rhythm a certain dynamic phenomenon displays within a certain dynamic
environment, it is then possible to derive conclusions about expected future behaviour,
based on previous rhythm patterns exhibited. Applying this to the HUI, if we can identify
it’s harmonic rhythm, in relation to price volatility, trend, and timing, or in other
words it’s frequency, pitch, and tempo, we can go a long way to being able to project
probable future outcomes, going well down the road. In summation then, we are about to
project the HUI’s future growth path, by engaging Fibonacci’s brilliant theory,
described above.
As you will see in the
following chart, one does have to exercise a flexible thinking process, even though the
basic premise we are working with is for all intents and purposes quite straightforward.
What do I mean? Charting markets is very much an art form in my opinion and one should not
get stuck on absolutes, especially as it pertains to highs and lows. Let me show you what
I mean, as it pertains to the subject matter below, in Figure 1.
Figure 1
Needless to say, there is a lot
of information on the chart above, so lets deal with one item at a time. Firstly, to
follow up on the point I was making above, which will also help me clarify the thrust of
this essay, one should notice that the price progressions in the HUI since the bottom in
November of 2000, are defined in two distinct stages, using a ratio of 1:1 as the increase
interval. The exact calculations are denoted with the blue annotations. As you can see,
viewing the HUI’s price progression over the past couple of years on this basis,
lends a high degree of logic and symmetrical appearance to it’s overall
characterization, just like a harmonic signature is suppose to do. That is because I
believe what is displayed on the chart above IS the HUI’s basic harmonic
signature, and that absolute price peaks are not of primary concern.
Our base model then, can be
defined as follows. The basic price progression sequence of the HUI can be mathematically
defined by the ratio of 1:1, in that subsequent progression sequences are likely to equal
the sum of the previous advance. It is of importance to note that when the basic ratio of
1:1 is exceeded, this will indicate that the future trend path for the HUI remains higher.
That being the case, notice the most recent closing price peak put in on the HUI is 151.91
(Figure 1), but that the basic Fibonacci progression, or harmonic impulse was only up to
143.96. Therefore, it is likely that the HUI is going to rally in another progression
sequence. It will be interesting to monitor whether the HUI can make it up to 287.92 on a
closing basis once it begins the next leg higher, due to commence in mid-April, as
measured by the 14.5 month, or 300 day cycle, which seems to be the timing component, or time
cells that define each successive progression sequence, denoted in charcoal in Figure
1. If it can, and perhaps even exceed the 1:1 ratio mark, that will indicate that the
primary harmonic rhythm that the HUI has been advancing within over the past three years
would still be alive and well.
So then, what can we expect out
of the HUI’s price progression in it’s next sequence, as defined by the harmonic
impulse pattern of adding an equal amount of the previous point gain in the sequence to
the price high of that same sequence? Well, we know that based on the previous two
sequences, that starting some time in mid-April of this year, the HUI should embark on
it’s next leg higher, which may include the following characteristics.
·
The price impulse higher may attain a
level of no less than 287.92 (143.96 + 143.96), and possibly exceed this level, to signal
the HUI’s bullish intentions.
·
The rally sequence high should be
attained within four to six months of cycle initiation, as defined by the previous time
sequences, and denoted by the red dashed vertical rails in Figure 1 above.
·
The full time interval of the sequence
should last 14.5 months, or 300 trading days, and be characterized by a ‘five wave
affair’ higher (denoted in the pink annotations), coming off of an ABC flat
corrective sequence, which looks to have ended in March at 114.35 on a closing basis.
Sound like fun? The fun using
this method of projecting the HUI’s future growth path is just beginning if you
embrace the full depth of the model’s construct. For example, as you know, the HUI is
not going to go straight up. There are likely going to be corrections along the way. So,
for you traders out there, how can we use the logic stream we have now established to our
advantage? Certainly on of the best answers I can think of is trading the big corrective
swings that will come upon us, as we advance through the staged sequences that lay ahead
in the HUI’s harmonic progression. Figure 2 gives us the benefit of hindsight and
tactical observation within the parameters of this Fibonacci model, which will enable the
educated investor to make potentially profitable trading decisions in the future, by
avoiding the next substantial correction, and substantial it will be.
Figure 2
Although I have only shown the
last corrective phase in relation to the entire move, it should be noted that both
Fibonacci sequences experienced 50% pullbacks (a Fibonacci retracement number which when
added to itself equals “1”) in relation to the full extent of their respective
advances on a closing price basis, so you don’t have to be a mathematician to
hypothesize that it is likely that this condition will persist into the future. Also, it
should be noted that with the HUI attaining ever-higher nominal values, the shear
magnitude of the corrections will increase dramatically, as we work through the next three
progression sequences which should comprise the characterization of the HUI’s
harmonic advance. For example, if the next progression sequence takes the HUI to 287.92 on
a 1:1 ratio basis, comprising a total point gain of 251.93, a 50% correction from the high
point, assuming it’s restricted to that level, would take the HUI all the way back
down to a bone jarring nadir of 161.95, wiping 125.96 points off the index in as little
time as several months. Pretty scary, huh? I have been trading for a long time and my
preferred method for taking profits on long-term positions is the one that has been
defined here for you today, as trading swings of this magnitude can be justified on an
after-tax basis, especially when you consider opportunity cost on other trading
possibilities, if you are nimble enough to take advantage of them. What have we learned
from the above then?
- After the initial advance in the
HUI as it enters a new 14.5 month cycle, investors should expect at least a 50% corrective
adjustment, which could occur in as little as several months, which may need to be further
tested within the 300 day cycle, and may very well act as a stopping point within the
advance, until a new cycle begins.
You may be asking yourself,
“How does the above examination of the corrective process within the advance sequence
of the Fibonacci model we have constructed fit into the definitional framework of our
model, or the ratio of 1:1, as it pertains to the price volatility patterns in the HUI,
within the dynamic environment known as the precious metals market?” A very good
question, because the answer to this question is going to help us statistically verify the
validity of the hypothesis of this essay, in that the harmonic rhythm of the HUI is
centred around the ratio of 1:1, and the concept of equality.
As mentioned above in brackets
above, when you add the two halves of the corrective phase back together, you obviously
come back to the whole of the move, or the integer of “1”. Without getting into
too much detail, some Fibonacci practitioners define this process as a Phi calculation (.5
/.5 =1). The most commonly understood Phi value within the Fibonacci universe is known as
the “Golden Ratio”, which is best expressed as a ratio of 1:1.618 for our
purposes. Why? Because we are going to use the “Golden Ratio” within the
construct of our model, in order to test the validity of our model mathematically,
within an acceptable variance.
Although
you may think that because of it’s name the “Golden Ratio”, that this
relationship is centred around gold itself. In actuality, the coefficient factor of 1.618
is arrived at by dividing a Fibonacci number by the previous Fibonacci number in the
sequence, averaged over the full extent of the sequence, and applies to far more dynamic
phenomena in nature, than just gold. I find it fascinating however, that it does happen to
occur as a coefficient value within the character of the gold market’s movements,
none the less. I find it more fascinating yet, that it actually does validate the
construct of the Phi calculation that is the basis of our model, in that definitionally,
the ratio value of 1.618 is understood by Fiboinacci practitioners to be Phi, and when
used as a coefficient to project a point gain in the HUI based on the previous progression
sequence, we get values that are within an acceptable variance to our model’s
construct. Before I go any further with this explanation then, let me show what I came up
with regard to verifying our model below, in Figure 3.
Figure 3
In examining the chart above,
one should first notice that basic character of the entire move can be separated into two
sequences, and that they are relatively equal in proportion, as it pertains dimensions and
time. The more important aspect of the above chart however, is based in the understanding
that we arrived at the values denoted in blue annotations using a Fibonacci coefficient
projection method, using the “Golden Ratio” value of 1.618. Please note how very
close these projections are compared to the calculations in Figure 1, and the price
progression itself. Based on this exercise, it certainly appears that we are indeed on the
right track.
Further, if we take the same
method of arriving at the “ Golden Ratio” coefficient of 1.618 and apply it to
our model, we come up with a coefficient for the HUI of “2” (2 / 1 = 2). And as
you can see above, 76.58 X 2 = 153.16, again further cementing the validity of the model,
in that we arrive at essentially the same high values for the entire move in the HUI by
adding the previous progression sequence high to itself, performed at a ratio of 1:1.
Going back to the corrective sequence displayed in Figure 2, we can also calculate the
HUI’s phi (notice the first letter in the term is not capitalized) to define the
corrective coefficient as .5 (1 /2). Of course it is far too early to say for sure, but
future price progression sequences may be characterized by the HUI’s Phi, and
retracements by phi, and if this so, the next price progression may take us to 303.83,
over the next 300 trading days. Let’s summarize what we have learned as it pertains
to verifying our model, as follows.
- The HUI appears to be advancing
in sequential progression cycles, which are symmetrical in all dimensions, and can be
quantified by engaging a Fibonacci projection calculation method using a factor of 1.618,
commonly known as the “Golden Ratio”.
- We have learned that at a
minimum, the HUI’s projection coefficient factor is 1.618, but may more likely be a Phi
of 2, in that if you multiply a previous progression sequence total point gain by 2, the
product you derive equals the total point gain for the bull run so far, within an
acceptable variance. If this proves to be the case in further progression sequences, it
will be statistically acceptable to label the coefficient factor of 2 as Phi, as it
pertains to the HUI, therein making it the HUI’s “Golden Ratio”. (See
Figures 1 and 3)
- It appears that the phi coefficient
for corrective sequences in the HUI is .5 (1 / 2), in that it has exhibited this behaviour
in two successive corrective sequences within both of the sequential progression cycles
thus far.
What other relationships could
we possibly look at to help us statistically verify the harmonic model we have
hypothesized is central to the HUI’s price sequential price progression
characteristics? Well, the most obvious one has got to be it’s relationship to gold,
so why don’t we look at how gold is relating to the HUI within the character of
it’s progression sequences. That would of course involve a look at the HUI/Gold
Ratio, presented for you in Figure 4 below.
Figure 4
Throughout my transgressions
associated with this study, the one comment I would have to make in relation to the
model’s construct to centre not only around the HUI sequential progressions itself,
but all of the relationships involved as well, is amazing. Notice in the above chart, the
symmetrical apportioning of this ratio’s advance, inalterably being drawn towards the
ratio of 1:1, in what appears to be a series of staged sequences, one built upon the other
in equal proportions, in terms of it’s previous progression, again at a ratio of 1:1,
and a Phi of 2. As you can see, we are actually right in the middle of a progression
sequence at present, which suggests that the impending advance in the gold complex will be
characterized by the continued out performance of the HUI over the price of gold, and that
the rally will extend itself until this ratio hits at least .542. Well, that is certainly
worth knowing, and in the bigger picture, it is equally rewarding to observe that this
understanding was derived using our model construct, as it applies to the harmonic rhythm
of the HUI itself. I find this occurrence truly fascinating. Let us see if we can find
more.
Why don’t we look at the
inverse of the HUI/Gold Ratio, to see if this can help us establish the model’s
validity, and predictive capabilities. After all, bottom line what I am attempting to do
here is define a model with statistical integrity, that can be used as a tool well into
the future, so we had better test it thoroughly. Once you see the uncanny commonality of
the HUI’s rhythm characteristics centred around it’s propensity to flux and
pulse in a direction that ultimately draws it to a state of equality in terms of it’s
previous sequential progressions, the verification process is engendered with a higher
degree of certainty. In Figure 5 below, this goal is accomplished with crystal clear
imagery, as it appears that the Gold/HUI Ratio is pulsing it’s way down to a ratio of
1:1, as well.
Figure 5
Isn’t this just the
previous chart flipped upside down? The answer to that question is yes. What then, is the
significance of doing so? The answer to that question will become apparent once we delve
into the more detailed workings of the Gold/HUI Ratio’s sequential progressions over
the past couple of years, as I can assure you it will aid our efforts at further verifying
that the construct of the model is valid, but before we do so, lets see if we can do a
simple comparison to Figure 4. Upon taking a cursory glance at Figure 5, you should be
able to readily discern that indeed, our model construct is present within the sequential
progressions of the two large sequential progressions that began in November of 2000.
Further, it should noted that it appears we have made the turn in what appears to be the
final sequence of this cycle, and that once the bottom rail in the current consolidation
flag is taken out, this ratio should pulse down to the ~1.5 area, according to the
construct of our model [applying the HUI’s phi coefficient to the above you derive a
product of ~1.5 (.5 X 3 = 1.5).
You may be saying to yourself,
“~1.5 is not “1”, so this leaves part of the comparison suspect.” To
address that concern, I have included a small diagram in the top left hand corner of the
above figure, which represents the larger sequential progressions that the Gold/HUI Ratio
should trace out into the future, potentially taking as long as 18 years, assuming gold
itself will adhere to the same model construct as the HUI. Even though we may not make it
all the way down to equality this time around, I believe that this ratio will eventually
do so, as we progress through the larger cycle. The larger cycle should be characterized
by a ‘five wave affair’ and involve minimum 50% retracements within the
corrective sequences, as well. Notice that the impending wave structure is identical to
that of gold itself, which ended a 21-year bear market coiling process in 2001, and for
that reason it is possible that the larger cycle in the HUI could last until the year
2021. Certainly that is the prospective for gold itself, with it’s larger cycle
likely to end in the year 2022, in order to fit the equality criterion of our model’s
ratio of 1:1, with a start date in 2001.
Well, that is certainly taking
it far enough out into the future. Lets come back to a more timely perspective, and see if
we can’t continue the model construct verification process by examining in more
detail, the sequential progressions of the Gold/HUI Ratio since it started it’s
decent in the year 2000, to see exactly what we can learn from performing this exercise.
(See Figure 6)
Figure 6
As you can see above, we can
learn quite a bit, from performing this exercise. First and foremost, the basic
underpinnings of our model’s construct are unquestionably verified, with the Gold/HUI
Ratio’s relentless decent over the past 25 months within exacting values as it
pertains to phi, which is of course the reciprocal coefficient factor of Phi, and a ratio
of 1:1 when measured in terms of the preceding sequential progression. The other
significant observation that can be made in the above chart is the presence of time
cells indicated by the dashed vertical lines. Note that represent six month time
blocks, and that they both encompass and separate intermediate term cycles, and that a new
cell is about to commence in late May, after running two consecutive cell blocks in a row,
defining the corrective phase the HUI has experienced since the end of May/beginning of
June, last year. In referencing our model construct, this opens up the possibility of a
one-year rally sequence, which may begin in earnest, at the end of May, as the ratio looks
set to penetrate the bear flag defined it’s movements over this time. When one
integrates this knowledge with the timing cells identified in Figure 1, the conclusion is
suggestive of a rally in the HUI commencing anytime now, but perhaps not putting in
disproportionate gains until we get closer to the end of May, and once the bottom rail on
the most recent bear flag identified above in Figure 6 is taken out.
To reiterate then, what we have
accomplished in the examination of the HUI as it relates to gold within the construct of
our model is as follows.
- First and foremost, the basic
underpinnings of our model’s construct are unquestionably verified, with the
relentless ascent/decent of the HUI/Gold ratio / Gold/HUI Ratio over the past 25 months
within exacting values as it pertains to Phi / phi, which also confirm the basic
construct of model in that a ratio of 1:1 is established, when an advance is measured in
terms of the preceding sequential progression.
- We have also learned that
because these respective ratios are advancing in this fashion, that it is likely they will
attain an ultimate factor of “1” (1 / 1), and we are likely to see this
occurrence sometime, and perhaps repeatedly, over the next 18 years.
- Based on the timing cells
identified in Figure 6, it is possible, if not likely, that a substantial rally in the HUI
will commence in late May, and could possibly last up to a full year, based on the need
for our model to attain a 1:1 ratio.
The one thing the above
exercise doesn’t do is delineate exact numerical targets for the HUI and gold, so
lets do that now. It will be necessary to look at gold now, in terms of our model
construct, in order to perform a reasonably accurate projection of just what kind of
progression targets we should be looking for in the HUI, as we progress into another
sequence. A view of the gold chart using our model construct can now be seen below.
Figure 7
As you can see, once we have
the model’s construct in place, the task of putting the pieces of this puzzle
together get a lot easier. From the above chart, using the basic Fibonacci formula of 1 /
1 to arrive at a coefficient of 1, and then taking that value and adding it to itself to
arrive at the projection target of $499, we accomplish the first step in our model
construct. Then, by multiplying the then known product of the first step by the a
coefficient factor of 2 (2 /1), which has proven itself to be a reliable product within
the gold complex through our examination of the HUI against gold already, we verify that
our first calculation is reasonably accurate, by comparing the product we get from the Phi
computation. And voila, you have a variance of $4 (503 – 499), between the two.
- Based on the observation that
Phi, as defined as a coefficient factor of 2 (2 /1), has proved as an accurate
verifier to our basic model’s construct, it is now possible to label the coefficient
2 as Phi, as it pertains to the entire gold complex, and as it applies to the
advance of this gold bull market. Notice that it is also possible to identify the
coefficient of .5 (1 / 2) as phi as the possible template to characterize the
corrective phases of the HUI’s sequential advance, with the recent correction in gold
attaining an almost perfect 50 % retracement off of the highs, against the entire gold
move to date.
Based on the observation that
gold seems to work into higher progression sequences in 15-month time cells, I do
not expect it will take out the previous highs in the three and a half months left in this
cycle. However, once gold commences a new 15-month progression sequence in August of this
year, I would expect it to pulse through the previous highs not long after it begins, if
our work with gold’s relationship to the HUI above has any predictive value. In fact,
if we look at Figure 6, and note that the HUI has run two successive six-month time cells
in the current consolidation, in order to attain a ratio of 1:1, we would then have to run
two time cells in rally mode, beginning in late May. When we put these two above
observations together, along with the fact that within the last progression sequence in
the gold complex we saw the HUI hit it’s initial high values in May of ’02, and
gold did not hit it’s high values until February of ’03, the task becomes
slightly more daunting, but doable never the less.
We know that once the Gold/HUI
Ratio breaks the bear flag that is currently restraining it’s decent, that it is
likely that the HUI will hit it’s high value range sometime within the first 4 to 6
months, but gold will not. Gold peaked in May of ’02 at $325, which was14.2 lower
than the eventual $379 top. Using the same variance off of our projected topping value of
~$500, we get an initial high value for gold’s first pulse higher into the new
progression sequence of $429, which should occur in coordination with the HUI’s
first run at high values for the sequence sometime in October, or at the latest, November
of this year, before we go into a phi retracement sequence. Using a 1.5 value in the
Gold/HUI Ratio then, we arrive at a projection high for the HUI this year of 286 (429 /
1.5).
I’m fairly confident that
the above objective(s) for the HUI and gold will be attained this year, and I am certainly
hoping that the full potential of these relationships is released next year, if gold puts
in a pulse towards $500, sometime in and around July of ’04, we could be looking at
the high value on the HUI attaining 333 (500 / 1.5), with a double bottom forming on the
Gold/HUI Ratio, before it begins it’s corrective ascent higher.
Using our model construct, I
have projected some targets for the HUI into the future. You should note, that I used the
conservative projection model, not the Phi coefficient factor of 2 multiplied by the
absolute price peaks in each progression sequence. If I had shown that, the ultimate peak
would have been in the 3,000 range. Who knows, maybe Richard Russell is right.
Figure 8
He is professing that the Dow
and gold are going to reach a ratio of 1:1 again sometime in the future, at or about
3,000. Well, if our model is correct, so will the HUI against the Dow and gold, as well.
And it will happen sometime between 2013 and 2021 either 13 or 21 years (both Fibonacci
numbers) from the start of the HUI’s bull market, in the year 2000. Note that because
the HUI was established as an index in 1996, we do not have a record of it ever attaining
a ratio of 1:1 with gold, however I believe there is a strong possibility of this
potentially occurring sometime over the next 18-years. We sure have a record of the
Dow/Gold Ratio hitting a 1:1 value however, and here is how it’s progressing this
time around.
Figure 9
Do you think it’s unlikely
that the Dow, Gold, and the HUI can all reach the same levels, at the same approximate
times? Well, after you view the following chart, you may change your mind, as it appears
that just as the Dow/Gold Ratio is progressing towards a value of 1:1 within the construct
of our model, the Dow/HUI Ratio is doing exactly the same thing. And if I had to pick a
number that would characterize where the three are going to meet, I would have to go with
a value closer to 2,000, because of the high degree of integrity we have established in
this model’s construct.
Figure 10
However, I must tell you, I
wouldn’t a bit disappointed if the HUI ‘s absolute price highs maintain the
character of Phi (2) factored into the HUI’s sequential high value, as that would
indeed put it closer to the 3,000 mark, as it’s ultimate peak. Whether we peak at
2,000 or 3,000, one thing is for sure, our model’s validation process has now been
extended to markets outside of the gold complex and it is still holing up nicely.
There’s only one conclusion you can come to after observing that fact. Must be the
human element in the markets, and isn’t Fibonacci’s work truly brilliant.
After a cerebral excursion like
the one we’ve just been through, it’s always a good idea to summarize our
findings, so here it goes.
- Our base model then, can be
defined as follows. The basic price progression sequence of the HUI can be mathematically
defined by the ratio of 1:1, in that subsequent progression sequences are likely to equal
the sum of the previous advance.
Accordingly, the next
progression sequence in the HUI should contain these characteristics, as follows:
·
The price impulse higher may attain a
level of no less than 287.92 (143.96 + 143.96), and possibly exceed this level, to signal
the HUI’s bullish intentions.
·
The rally sequence high should be
attained within four to six months of cycle initiation, as defined by the previous time
sequences, and denoted by the red dashed vertical rails in Figure 1 above.
·
The full time interval of the sequence
should last 14.5 months, or 300 trading days, and be characterized by a ‘five wave
affair’ higher (denoted in the pink annotations in Figure 1), coming off of an ABC
flat corrective sequence, which looks to have ended in March at 114.35 on a closing basis
·
After the initial advance in the HUI
as it enters a new 14.5 month cycle, investors should expect at least a 50% corrective
adjustment, which could occur in as little as several months, which may need to be further
tested within the 300 day cycle, and may very well act as a stopping point within the
advance, until a new cycle begins.
·
The HUI appears to be advancing in
sequential progression cycles, which are symmetrical in all dimensions, and can be
quantified by engaging a Fibonacci projection calculation method
using a factor of 1.618, commonly known as the “Golden Ratio”, verifying our
model construct.
·
We have learned that at a minimum, the
HUI’s projection coefficient factor is 1.618, but may more likely be a Phi of
2, in that if you multiply a previous progression sequence total point gain by
2, the product you derive equals the total point gain for the bull run to that point,
within an acceptable variance. If this proves to be the case in further progression
sequences, it will be statistically acceptable to label the coefficient factor of 2 as
Phi, as it pertains to the HUI, therein making it the HUI’s “Golden Ratio”.
(See Figures 1 and 3)
·
It appears that the phi coefficient
for corrective sequences in the HUI is .5 (1 / 2), in that it has exhibited this behaviour
in two successive corrective sequences within both of the sequential progression cycles
thus far.
What we have accomplished in
the examination of the HUI as it relates to gold within the construct of our model is as
follows:
·
First and foremost, the basic
underpinnings of our model’s construct are unquestionably verified, with the
relentless ascent/decent of the HUI/Gold ratio / Gold/HUI Ratio over the past 25 months
within exacting values as it pertains to Phi / phi, the HUI’s dominant
coefficient factors.
·
We have also learned that because
these respective ratios are advancing in this fashion, that it is likely they will attain
an ultimate factor of “1” (1 / 1), and we are likely to see this occurrence
sometime, and perhaps repeatedly, over the next 18 years.
·
Based on the timing cells identified
in Figure 6, it is possible, if not likely, that a substantial rally in the HUI will
commence in late May, and could possibly last up to a full year, based on the need for our
model to attain a 1:1 ratio.
·
Further, we have learned that with the
projected target of ~1.5 for the Gold/HUI Ratio in this progression sequence, and gold
forecast to attain $429 and then ~$500 using our model, we would expect see the HUI
trading at the high values of 286 in October of this year, and potentially as high as 333
by July of next year, assuming our constructs are valid.
·
Based on the observation that Phi, as
defined as a coefficient factor of 2 (2 /1), has proved as an accurate verifier to our
basic model’s construct, it is now possible to label the coefficient 2 as Phi, as
it pertains to the entire gold complex, and as it applies to the advance of this gold bull
market. Notice that it is also possible to identify the coefficient of .5 (1 / 2) as phi
as the possible template to characterize the corrective phases of the HUI’s
sequential advance, with the recent correction in gold attaining an almost perfect 50 %
retracement off of the highs, against the entire gold move to date.
·
The validity of our
model’s overall construct is enhanced considerably, above that which has already been
established with our examination of the HUI’s relation to gold itself, by further
testing the operational constructs of Phi and phi using inter-market
relationships as a verifier. As a product of this exercise, we have learned it is
likely the Dow, gold, and the HUI will all meet at a ratio of 1:1, sometime between the
years 2013 and 2021, and the level they will attain equality at will in all likelihood be
very close to 2,000, with the possibility of a value closer to 3,000, if the more
aggressive derivation of our model proves to be the dominant force.
Overall then, what we have
accomplished in this essay is the design of a functional model as it applies to the
harmonic rhythm of the HUI, as defined by the brilliant principles of Fibonacci. We have
discovered the base dimensions, tempo, and timing of the HUI’s advance to date, and
constructed a template from those findings, with which we can project future price
trajectories for the HUI, well into the future.
I hope it is a template that
you will put to good use.
CAPTAINHOOK
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