As many of you know I have been looking for a price objective for wave 3 of III to come in around the 720 area based on my “Base Template”. The Base Template has called the last 2 major tops on the HUI almost to the dollar. It has been projecting a major top area to come in at 720 in May of this year based on our 6 month time cycles. I have been scratching my head the last month or so trying to fit the 6 month time cycle and the Base Template into our current situation without much luck.
The thing about charting is that it is a constantly changing endeavor that requires one to always be on the lookout for things that don’t add up or don’t fit a previous outlook. I am at that point right now with this new upleg. Things are not adding up like I thought they would at this point of the bull market. It appears to me this wave 3 of III is going to be much bigger than most folks are projecting. I have posted a chart of the Wave III road map several times trying to show how we might go from the bottom rail of our major uptrend channel to the top rail. I still think we will get to the top rail of our uptrend channel but how we get there and when we get there, based on current information, is how we must proceed. New information and evidence will over ride previously analysis IMHO.
Our wave 3 of III already has 2 completed waves, waves i and ii. With that information we can now begin to lay out our wave 3 of III road map in time and price. First wave i of 3 low was 285 minus the high at 463 = 178 points. This rally leg, wave i of 3, is the most important leg to show how we may proceed with the rest of our wave 3. It is fairly common that the 3rd wave in a sequence will be 1.618 the size of wave i. If that turns out to be true in this wave iii of 3 then we can multiply 178, the number of points for wave i of 3, times 1.618 to give us a total number of points we should see for our wave iii of 3 which is 288 points. Now we can add 288 points to our wave ii low at 372 to get our wave iii of 3 high at 660. This is where we are headed right now in our wave iii of 3. From the top at wave iii of 3 we should get a correction that is 38%, 50% or 62% of the entire wave 3 of III. At this point I am going with a 38% retrace of our wave 3 of III that will take us down to 518 area for our wave iv low. The wave iv low will touch our bottom uptrend rail for support if that is the case. We will now have 1 more rally leg to finish off our wave 3 of III which is wave v up. Alot of the times wave i and wave v will be equal in size and if that is true here we can add the length of wave i to the bottom at wave iv to get our wave v high at 840.
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Several things to note here. First, 3rd waves in a sequence tend to be the strongest waves and can spike up through the top rail of the uptrend channel in a blow off move. Observe the 3rd wave in our wave 1 of III in the chart below. You can see how we spiked up through the top rail of wave iii of 1 which signaled the end for our wave iii of 1, green circle. If we get a spike through the top rail of our current wave iii of 3 uptrend channel we will know the end is near for this particular move.
Second, wave 1 of III lasted exactly 1 year so I am looking for our current wave 3 of III to last at least 1 year, putting us out to August of 2008 for a top which could be close to 1000 on the HUI.
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Third, the wave 3 of III uptrend channel that I have drawn is not typical in its construction. The top rail is defining the bottom rail, just like our wave 1 of III and several other rally legs. Below are all the rally legs of the entire bull market separated by their large consolidation patterns. Our current rally leg looks very similar to all the other rally legs at this point of its construction.
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This is a road map to help us keep things in perspective. The road we are on is full of twists and turns that we might not be able to see until it is too late. With a road map of some sort, we will be able to see trouble ahead and possibly avoid a big accident on our way to the next location, wave 3 of III top.
All the best…Rambus