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.
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