"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


Friday, June 22, 2012

HUI Chart Pattern Needs Some Help

As has been the case with the mining shares for some time, (going back as far as the first round of QE in late 2008), they require a shift in trader sentiment away from a DEFLATIONARY scenario towards one of INFLATION. The latter is what has resulted from each round of stimulus launched by the Federal Reserve.

This week's lack of an imminent launch of a QE3, has set mining shares, as well as bullion, back on their heels as traders have made the shift back towards expecting a further slowdown in global growth and more of a deflationary environment.

This shift is showing up in the decidedly bearish chart pattern now forming in the HUI once again.

If you take a look at the Fibonacci Retracement Levels noted as well as the horizontal support and resistance levels I have marked on this chart, you can see just how closely both correspond with the other.

In the middle of May, price rebounded sharply from the decline that began in late February as the gold shares reached levels of valuation that many believed were excessively low. That brought in some very strong buying which took price to near the 460 mark, a level which happens to be both the bottom of a former consolidation range and the exact HALFWAY or 50% Fibonacci Retracement Level of the entire decline.

Price then retreated as expected with dip buyers coming back in and taking the index back up to 460 once again. This time however, instead of continuing to power higher, the index fell back sharply when the lack of QE3 hit traders between the eyes.

The index failed to hold support near the 440 level, a level which formerly had been resistance on the way up and now became support on the way down. It also corresponded to exactly the 38.2% Fibonacci Retracement Level of that same decline that began in late February.

Technical Analysis's REVERSE POLARITY PRINCIPLE tells us that it should have held if the market were going to continue with a bullish posture. Its failure to do so is therefore bearish for the short term.

The index will now probe lower as it seeks to uncover buying support once again. There looks to be the potential for that support to have emerged near 420 but it is too early to say so with an certainty. Confirmation will only occur if the price moves back ABOVE 442 and holds.

If not, the path of least resistance on this index is lower with the level near 410 the next region where some buying should emerge. Failure to hold there and the index faces the real possibility of heading down towards first 390 and then the recent low near 370.

The onus is firmly on the back of the bulls to perform.

1 comment:

  1. I have a deep dislike for the central banksters and all their market manipulation. But one has to admit that they have been very efficient at bringing down the whole commodity complex while maintaining the S&P 500 index fairly high. I’d be curious to see an updated chart of the HUI against the S&P 500. It is even more remarkable when one knows that the world economy is on the hedge of the cliff and that there could be a war looming around the corner in the Middle East.

    One thing I have noticed over the past 3 to 4 months is that there is a huge amount of shares being traded in the last 15 minutes of every trading day. Just before the close. Is this the foot print of the new Central Planner market manipulation system? Are they just washing out their daily algo and HFT positions right before the close?

    The whole thing has become a bitter mockery where markets are completely manipulated through wide variety of mechanisms. And the Institutions and Agencies that should monitor and regulate these markets are all headed by people coming from the banking cartel.

    We are not so far away from living in the world of Big Brother. Public institutions have completely lost their credibility and politicians have become the enemy of the masses in the entire Western World. The current construction of Europe resembles more every day to the establishment of a new financial fascist aristocracy.

    With so many interventions of all kind and a complete impunity (MF Global is just the tip of the iceberg) is there still some hope that at one point the fundamentals will prevail? I mean I am really asking this question. For now we have to trade on the expectation of what the Central Planners will or will not do. Really sickening.

    One last word, I would not be surprised to see the war in the Middle East break out just before the whole financial system implodes. These psychopath “think they are Gods” Banksters will not hesitate to kill millions of lives just to save their system or even worst, to impose the next generation of fractional reserve monetary system. In the main time, they keep accumulating an ever increasing amount of wealth at an increasing speed. The whole Greece is now for sale. I bet that soon we will see a Goldman Sachs’ sign floating above the Parthenon…


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