Recent article on M+M from Avi Gilbert - Must read M+M insight.

I just found this Marketwatch article by Avi on M+M.  Seems Avi thinks a very long term bottom is near and that a massive 3rd wave up begins once that bottom is put in.  He seems to think we still have a bit lower to make it down to the bottom of his C wave (I can only guess he is sticking with his 105 target on GLD).  He noted recent "gold is dead" themed articles being floated by the clueless media (like the type I have been posting links to of late with the same commentary that they are contrarian indicators) and he recognizes these as being signs of the bottom.   In other words, the main stream media is like the naive shoe shine boy in the old Joe Kennedy story which warned him about the coming collapse of '29-32 and led to the saying that you know a change is near when the shoeshine boy expects more of the same direction of the current trend and begins to give you tips on it.

Here is Avi's link to the HUI miner index (AKA gold bug index) model which was provided in that article.  This is the first HUI chart I have seen from him and what it basically says is that miners are in a long term bull market which began in Y2K ("coincidentally" when the fed saved dot bomb from collapsing by printing money).  His model counted 5 waves up on the HUI into early 2008 which meant we should get some kind of a 3 wave pullback from the 2008 highs.  That wave is an a-b-c affair which took the form of an expanded flat according to Avi's model.  In other words, the B wave of the correction was higher than the 5th wave of the first motive wave up from the start of the bull (circle 1 in his model). 

One detail of his chart is that it seems to predict a bottom for HUI in range of 119-158.  Of course, HUI already dipped down to $146 which is within but at the top of this range.  If I read it correctly, Avi's C wave is expected to bottom at about $119.  In fact his article was released on 11-20-2014 and the title is that it is "almost" time to buy gold.  So that implies that he thinks the bottom is not in yet even though his bottoming window was entered.   In fact, when referring to GLD he says in his article, "I still do believe lower lows will be seen in the metals, yet it will likely be a buying opportunity and not a selling opportunity".  So, yes, he still thinks that the 5th of C is not done yet.  I still stand by my view that most people who don't want to trade should just buy something golden (or at least begin cost averaging into something golden) and hang on for the volatile ride in the sure and certain knowledge that gold will never go worthless.  The leverage hierarchy in this is:

• physical gold (no leverage)
• gld/slv (paper metals - they do have risk and leverage)
• GDX/HUI - unleveraged mid-senior miners
• GDXJ - unleveraged junior miners
• JNUG - crazy leverage on the juniors - Because they are based on options you cannot hold this over long periods of time unless the GDXJ shares continue to move up.  If held during sideways markets, you will lose time value on this.  In this case, if you want more leverage you are better off holding GDXJ on margin as long as margin rates are low.

Interestingly (at least to me) Avi's model believes that since 2011 we have been tracing out the C wave.  This is in stark contrast to the current EWI model which I have been vocally and increasingly suspicious of which says that the recent thrust down was just the A wave of the correction (which should bounce to ~1400 and then plummet to $750).  Avi's model makes more sense to me.  I just don't see how gold goes to $750 for more than about a 2 months without killing half or more of the junior miners.  And just 4 months down there could suffocate 80% of them.  They cannot pay more to mine and refine than the market is paying them to do it.  They just don't have the cash like some of the bigger operations do in order to survive long without income. 

So clearly Avi thinks that the HUI C wave should fall lower than the A wave before it is complete.  While we could end up with a short stroke C (which could mean we will never see Avi's HUI 119 target), if the broader indices went into a tail spin starting very, very soon and it pulled M+M down with stocks (they have been trading in sympathy of late), a very rapid move over time could be enough to cause the fed to step back in with QE (this time even bigger than before would be needed) in order to stabilize things.  Once the market would see that move then it would be clear that QE is now a part of the economy; the patient will die without it.  Once that becomes clear, low inflation will be replaced by expectations of rising inflation which would catapult M+M into a 3rd wave. 

So what I see is that the HUI Daily OHLC chart chart has put in 3 waves up to about the level of the prior 4th (that 4th wave triangle from October is pretty easy to spot).  Additionally, the center wave of the recent bounce looks quite triangular suggesting that it could be a B wave (penultimate in a 3 wave correction).  Also, the fib retracement calculator tells us that HUI is right at the 38.2 fib right now.  HUI will need to break out of this with some gusto in order to avoid falling back per the red or blue models below.  Note: I used 129 instead of 119 for the low in the red model below.

Of course, HUI cannot be still down trending if it creates 5 waves up so it's important to have a count that allows us to track this.  By everything that Avi recently wrote, I think this could be the low level model he is thinking about: