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Here’s my latest interim trading charts for the HUI Gold Bugs Index:

The HUI Index over the last couple of weeks has delivered a series of 4 “lower highs” along with triple support at the HUI 282-285 level, giving us a descending triangle pattern.

So why the lower highs, with gold trending higher and holding above $900?

In my mind, simply because of the downward pressure on the broad market. But, that is slowly coming to an end. Both gold and gold stocks have been slowly disconnecting from the market. Gold has rallied into a rising US Dollar. Gold has rallied into the collapse of Oil. And gold has continued to rally even as the CRB commodity index has continued to fall.

Presently, the HUI Gold Stock Index is undervalued by over 50% to the price of gold. Earlier in the cycle, at a $725 gold price, the HUI was at 400. Today, we have gold over $900 and the HUI is at 300.

If the broad market can bottom here, and then rally on the finalization and announcement of the bailout and stimulus package… gold stocks have a large valuation gap to fill.

If gold can hold $900 plus, that “valuation gap” can take the HUI up +50% to HUI 450ish:

HUI Gold Stock Index is 50% Undervalued to Gold

Raise stops up behind this move, but give ‘em enough leash to make the run to HUI 400+ if the market finds a bottom here.

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