"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Wednesday, March 23, 2011

HUI takes out overhead gap

The HUI is uncharacteristically strong this morning given the overall weak tone in the broader equity markets. It is a bit tricky reading too much into a market over one day's trading action but today at least, it appears some of those hedge fund ratio trades are being covered.

We'll have to keep an eye on this because there are two sectors that recently have both been looking very good on the charts - precious metals and the oil sector. Some of the oil stocks are weaker this morning but the last week or so they have been perking up. What we might be seeing is investor money moving into the mining shares and the energy sector as a play on future inflation. If that is the case, and I want to emphasize that I am uncertain on this as of yet, the hedge fund ratio trade will begin to be lifted as it will be counterproductive if the hedgies are going to go the inflation play route. That spread trade has been extremely profitable for them over the past couple of years so they are not going to jump out of it unless they are given a strong reason to do so. If they do go down this route, the most logical trade would be to spread off the miners and the energy shares against the broader market. Of course I have been saying this for some time and no one has bothered to listen which explains why I am not a hedge fund manager.

The HUI has managed to not only close the gap under 553 but plow through it in very convincing fashion. It now has a shot at moving toward the next resistance level just below 580.

Seeing it moving higher alongside of both gold and silver is encouraging for the friends of the metals. Let's see how it closes today.


  1. Anybody mind explaining what the 'Hedge Fund Ratio Trade' referenced in this article is??
    Would love to know!

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