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I am and have been expecting a "golden year" in this new millennium for the gold market. I forecast that January was likely to see sentiment reach the same Bearish levels of despair we saw prior to the explosive rise last September (it did). One only had to scan the Kitco board in recent weeks to get a feel of the despair of those still holding gold stocks, absolutely classic! And I highlighted that January would be an excellent time to accumulate gold stocks as the "weak hands" gave up right before the potential big up move. And I forecast that a minimum upside expectation would be a rally above the $400 level this year. Also, lets not forget the forecast of a major upside move in the CRB index, as the "paper asset" cycle gives way to physical assets.

So far everything is unfolding as expected and Fridays huge gold rally could well be the start of massive 3rd wave upside acceleration. In the last report I labeled the gold rally from last years low around $252 to the $339 highs as Wave 1 of an unfolding Bull Market. The decline to the 276 level retraced about 73% of the that initial rally. It is a common occurrence to have very large retracements of an initial rally, off what is likely a major Bear market bottom. If Fridays rally was in fact part of a big 3rd wave rally, then a reasonable expectation would be to see this Wave travel 1.618 times that first wave. That would project the 3rd wave to travel $140, if we add that to the Wave 2 bottom at the 276 level, we get a projection of $416. Which is very interesting since that is an important Elliott wave resistance level from the Bear Market decline, and a very likely rally target.

These projections may be meaningless if the rally fizzles early next week, and if we see a close back below the 295-300 level. What is important to garner from the Ewave pattern here is that IF it is Bullish, then we HAVE to be in a 3rd wave upside acceleration, which allows for very little downside in terms of price and time at this juncture. So we have very reasonable upside projections and we know the advance should remain strong next week if that interpretation is going to be correct. If it doesn't, then we will examine other possibilities. Bull market rallies can take several different Ewave patterns. It's my "best guess" that the early stages of this Bull market will see huge violent up moves, followed by long, drawn out deep corrections of those moves. Very similar to what we have just witnessed for the past several months.

All the necessary underpinnings for a Bull market are in place. As forecast, the CRB has rallied strongly, on Friday we saw new daily and weekly closing highs for this rally above the 213 CRB level. A few weeks ago we broke out above key resistance at the 209-210 level, and last week we successfully tested that breakout level and closed the week top tick. We could now very well see an accelerated advance in the CRB to next resistance at the 230 level at a minimum. So now it's not only oil and a few other commodities rallying strongly, the entire commodity sector is "broadening out" as it is supposed to in a developing Bull Market rally.

And we continue to see pressure in the labor market as various economic reports point to a "super heated" economy that now appears to be causing an accelerating increase in wage pressures. It looks like "nirvana" in the Financial markets is likely coming to a rather rude ending as we move from a paper asset bubble and major stock market peak, to a Bear Market in stocks and a Bull Market in commodities and gold. I have little doubt this is what will ultimately transpire, and the odds have increased very strongly that the gold and commodities will now rally up in a strong advance. The Tech stock and Internet indices appear to be in their FINAL moves to the upside as Friday we saw both the Nasdaq and Nasdaq 100 indices make new all time highs. And if you look at the daily and weekly charts in those averages, those rallies look to be classic 5th wave(ending) moves that are VERY NEAR to completing. The current weekly momentum and RSI non-confirmations of the price highs, are also classic readings that are often seen at a top. And we are now seeing a classic broadening out in the commodity rally, while we have seen for months and years a dramatic decrease in the number of stocks participating in the Bull Market, as fewer and fewer indices make new highs.

I think if one logically looks at what the markets are telling us it is clear that major turns are taking place. And expect volatility to continue to be extreme. With huge derivative and hedge fund positions out there in most key markets, we have seen what the unwinding and stress of those positions can do to a market. We only have to look at the last few weeks action in the Bond market for a great example. So expect moves that use to take months and even years to often be compressed in much quicker, more violent rallies and declines. This volatility, and I believe it will lead to continued and even more aggravated financial turmoil, will only make gold and gold stocks a more and more attractive investment alternative.

The great financial wheels are turning, creating excellent trading and investing opportunities. Subscribers to my service are aggressively positioned in gold stocks and options, as well as a Rydex Precious metals position. We are also gradually building put and short stock index Futures positions in the equities markets. I believe these are excellent risk/reward opportunities. But always remember NEVER get married to any scenario, and remain flexible. What I see now causes me to believe that the odds of what I have forecast occurring are very high. But if conditions change and become different, I will change to. So far the early January forecast has been right on target, next week should be EXTREMELY interesting and important. If anyone would like to comment on my views, or receive a FREE 2-week trial of my daily newsletter, simply Email me at wave@pacifier.com

Mike Drakulich

9 February 2000

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-- Farouk Madjurian (fmadjurian@hotmail.com), February 08, 2000

Answers

Thanks, Farouk. Interesting reading.

-- Mara (MaraWayne@aol.com), February 08, 2000.