HUI range constricting

The mining sector, as evidenced by the HUI, remains mired within its now more-than-a-year long trading range which is bounded on the top by the 600 level and supported on the bottom by the 500 level. Going back into November of 2010, all rallies have eventually failed to hold for long above the top of this range. There were only two weeks in which the index was able to pull off that accomplishment but it then failed and failed very large at that. It collapsed over 85 points in a single week which dropped the index back down to the bottom of the range.

This needs to be kept in mind as we look at the daily chart which is detailing a pattern showing a tightening congestion as it moves into the end of the year. Normally one looks for a breakout of this type of coil and then a strong trending move in the direction of the breakout. However, before such a trending move could occur, we would need to see the breakout from the current constricting coil actually extend beyond the boundaries noted on the weekly chart. In other words, the breakout must have enough force behind it to not just take out the top of the downsloping trend line of the coiling pattern but push past the horizontal resistance line near 600 on the weekly chart if these mining shares are going to start a strong trending move higher.

The flip side of course is that a breakout of the lower upsloping trend line of the coil would have to extend deeply past the bottom of the larger trading range near the 500 level to suggest a trending move to the downside in these stocks.

The summary of all this is that we are still stuck in a very broad, year-long consolidation phase in the mining sector shares with some potential to resolve this stalemate depending on how the market views the efforts of the various Central Banks in dealing with the current sovereign debt crisis. Other than that, it is as much fun as watching paint dry.

Up and Down we Go - where we stop nobody knows

Yesterday gold was anticipating a stronger policy response coming out of the upcoming meeting in Brussels dealing with the sovereign debt crisis in the Eurozone. That brought buying back into a host of markets as well with equities rallying and the risk trades back on in full force. Today? Well, that was yesterday.

Once current ECB President Draghi basically squashed the idea of large bond purchases by the ECB, the market promptly threw away everything it put on yesterday totally reversing the risk trades as disappointment that the liquidity punch bowl was not going to be spiked as strongly as most were expecting took hold.

This madness will continue as long as uncertainty remains with traders seizing on every single bit of news to cram gobs of money into the markets or yank those same gobs back out again.

At some point it will resolve itself one way or the other but until it does, up and down is the order of the day. Perhaps something will come out of that meeting in Brussels tomorrow but who knows at this point.

As it now stands, gold remains mired in its coiling pattern. Notice how the downtrending upper resistance line is holding rallies in check.