HUI Weekly Chart needs to improve - very soon

I am focusing in on the weekly chart to provide a bit of a longer term perspective as today's action (Tuesday) has put the HUI in very dangerous technical territory from which it must recover before the week is out in order to prevent a deeper sell off.

I have drawn in TWO support lines on the chart which have proven to be of significance to this index. The upper line comes in near the 520 level and the lower line near the 500 level.

When the HUI broke down below the first line in today's session, it immediately fell down to the next line or lower support level before bouncing. This lower line is now critical.

The HUI has had only ONE WEEKLY CLOSE below the 500 level the entirety of this year. That was back in June when it closed out the week at 496. The following week saw it close back above the 500 level which in hindsight proved to be the confirmation that a bottom was in for the sector. Perhaps that was a precurser of what we can expect this time around. Let's hope so.

You will note on the chart that over the course of this current year, there have been several other weeks during which the HUI had pushed down below the 500 level but by the end of the week, it had recaptured it.

We will need to see the index close the week above this lower line to prevent a deeper setback in the sector as a whole.

Note that the WEEKLY MACD is now in a bearish mode meaning that most likely rallies are going to be sold unless we see this indicator reverse to the upside.

The bulls have their backs to the wall and are going to need to stand their ground and dig in if they are going to be able to thwart this lastest effort at leaning on the shares. I would breathe a sigh of relief if the index can close OUT THE WEEK ABOVE the 520 level.

One final thing - the HUI/Gold ratio collapsed today taking it down to a new low for the year. It is now at levels last seen way back in March 2009 when gold was trading nearer to 930 - 940. Astonishing!  Wait until some of these gold mining outfits release their quarterly numbers. I find it hard to believe that there is not going to be some very large profits being generated in this industry.

S&P 500 once again nearing 1100

As you can see on the following chart, other than the day on which it made a spike low and pushed sharply off the break below the 1100 level, the S&P 500 has not since managed to move back below this critical level. Each time it has threatened to do so, it has been resuscitated ( I believe thanks in part to the Exchange Stabilization Fund folks).

Today it has pushed below that 1100 level briefly but has popped up. How this thing closes today is going to be interesting. If the ESF rushes back in and props it up and prevents a CLOSE below this level, it will likely bounce, even if the bounce is small because techicians will point to the stability above the support level and how that is being reinforced. If it fails, no technician of any sound judgment is going to be able to make a bullish chart argument and the market is going to head lower first towards 1050 and possibly towards 1000 if that fails to hold.

Gold probing upside resistance

Gold is garnering strength from overnight news that Greece looks to miss its debt reduction target. This is causing further fears about the well-being of Europe in general and is bringing in selling across the global equity markets.

What is noteworthy about gold in today's session is that it is making this move towards overhead chart resistance with the Dollar knocking on the door of the 80 level on the USDX. The European currencies, the Euro, Swiss Franc and British Pound are all under pressure today as are the commodity currencies. The result - gold is moving higher in terms of all the major foreign currencies, even the Yen, which is garnering its usual mindless safe haven bid.

Euro gold seems to be finding willing buyers down near the 1200 level.

As far as the technical chart picture for gold in US Dollar terms: Note the downtrending price channel delineated in red on the chart. Gold is now challenging the lower side of this channel after having dropped out of it recently. That is a very encouraging development. Also, that lower channel trendline meets up with horizontal resistance coming in near the $1660 level. That is what makes this level signficant. If gold can hold its gains here, it should be able to push back towards the formidable $1680 level. Above that we get $1700 back in play.

Asian buyers stocking up ahead of the festival season are no doubt keenly watching these developments. If they think that the hedge funds are going to come back in and take prices higher, they will buy at current levels ahead of them. If they believe that the mindless managers will dump more gold, they will take their chances and step back and let price come to their buy orders.

It is also not hurting gold to see the HUI continue rebounding further away from the 520 level, especially witnessing the selling hitting the broader S&P 500. That level thus far is holding like a rock on downside probes. The longer it holds, the more short covering we are going to see on the part of frustrated bears. Evidently, buyers see value in the shares at those levels. This index needs to clear 550 on a closing basis to rattle some of the fresh shorts whose short covering should then take the index towards resistance near 570.

Trader Dan on King World News Weekly Metals Wrap

please click here to tune in to my regular weekly radio interview with Eric King on the KWN Weekly Metals Wrap. We will be discussing the technical posture of both gold and silver as well as some significant developments in the Commitment of Traders Report.

http://tinyurl.com/3bsokd4

Monthly Gold Charts - Closing Price Only

Gold market has calmed down a bit

It is still volatile but compared to the wicked roller coaster rides of recent days, it seems a bit calmer. Physical buying under $1600 has been very strong which is serving to shore up support on the chart. Still, there is not enough "umph" to take it convincingly through the $1680 level, a level which must be cleared to let this thing retest $1700.

Downside support near $1580 needs to continue to hold to keep it from dropping back towards $1550. So far the spike low seems to be safe.

The mining shares are still struggling to get anything going to the upside. The S&P has faded from its earlier gains and moved into negative territory as I wriet this. That has taken most of the wind out of the HUI.

Gold Chart and comments

I am basically reposting the 4 hour chart that I sent up yesterday as it has been a good guide for locating resistance levels and support levels. I noted yesterday that gold would run into selling near the $1680 level, the location of the former gap and go region. That is where it ran in today's session before the sellers showed up.

A probable bottom has been put in down near $1535 based on today's followthrough buying but there remains a fair amount of technical damage that will require repairing before anyone can start talking about a new leg higher.

I do like the action however as it bodes well for a period of sideways consolidative trade, which is just what the doctor would want to order for this "disorderly market".

On the downside, it will likely retest $1640 for starters to see whether or not it can entice any bulls at that level. Failure there should let it move down towards $1620 - $1615 and then $1600.

On the topside, we need to clear $1680 and hold above that level to set up a push back into psychological resistance at $1700. Above that is $1710 - $1715.

Some could argue that a potential bearish flag formation can be seen on the chart but I think the rebound off the low was too strong for a flag. Perhaps their reasoning would be more solid if the market could not get back over $1600 but it did moving over $120 off the recent low.

Not only that, we are getting a very good washout of speculative money, both in gold and in silver. Quite frankly I wonder where we would get the downside firepower to take price down below $1550 once again on strong enough volume to constitute a fresh, legitimate leg lower. It would take a rather sizeable exodus of hedge fund money not only out of long side positions, but also into establishing fresh short positions.

Not that those guys care a whit about fundamentals, but given the current interest rate environment and the pumping of further liquidity into the system, that seems to be a rather remote possibility.

By the way, to a totally disinterested observer, the modern hedge fund community must no doubt resemble those who have some sort of pathological disturbances in their brains. The mood shifts and swings are downright manic. Sunday evening the world as we know it was coming to an end. Today the only fear is being left behind as the bull train leaves the station without being on board. Are these guys pitiful or what?

What is especially distressing is the fact that we have an entire generation of investors who seem to have absolute faith and confidence in the power of Central Bankers to create prosperity by conjuring liquidity into existence. I am not exaggerating when I say that historians will liken our generation to those of the Medieval period who spent countless hours and resources studying alchemy while attempting to turn lead into gold.

When all is said and done, what the hell is the difference between us and them? Both feats are impossible yet that has absolutely no inhibiting effects whatsoever. Pity the generations that came before us - if they only realized how easy it was to build a strong economy with such little effort....

Country Western buffs will no doubt remember Mel Tillis, the stuttering talker (we used to call him, M,M,M, Mel Tillis) who totally lost that impediment while singing. He had a song out that became a classic:

"Stomp, stomp them grapes
and make that wine,
put it in a bottle boys
and ship it on down the line".

http://www.tropicalglen.com/Country/Jukebox/1974/YR-1974.html

This could be the new song for the Western Central Bankers. They used to be the ones who took away the punch bowls from the party. Not any more... They are the bartenders in chief.

Gold charts and some comments

Gold breached the downside of the downtrending price channel that had been containing price action for the better part of the month of September last week. Overnight it was hit especially hard as a wave of selling across the entire commodity sector flared up as traders ran away from anything remotely resembling risk trades. That selling sent gold down nearly $100 at one point. The volume of trade was especially heavy for those particular hours. However, the selling exhausted itself as some larger buyers swooped in (very possibly Asian Central Banks) and scooped up the metal that was being discarded by the hedge fund algorithms. The recovery basically brought the market back up to its closing level from last Friday creating a potential spike bottom on the chart.

If you note the first blue level of resistance drawn in on the chart that comes in just shy of the $1640 level. Gold will need to push through this level and stay above it to give the bears a bit of unease who have been very confident of late. If the bulls can take this hill, then they have a legitimate shot at seeing price run back up towards $1680, which was a level commensurate with a former "gap and go" on the daily price chart. That level should bring in some selling and could stall any upward motion barring any fresh fundamental news. 

I am looking for and indeed would prefer to see, some sort of stability in the price. The last thing this market needs is another $100- $150 push higher right away. That might actually spook some of the would-be end users.

A come down in volatility with perhaps a smaller daily trading range is exactly what it needs to inspire some confidence on the part of the many end users who are wanting to stock up before the festival seasons. Extreme volatility can spook those guys and leave them on the sidelines. They will want to see that prices have indeed moved into a level that is going to hold and then they will feel more comfortable making larger purchases.

The other possibility that we will watch for is for another leg back down lower again, only this time on decreasing volume which would indicate a loss of appetite on the part of the bears to sell aggressively at these lower levels.

One does reach a point in these hedge fund driven markets where price overshoots both the upside and to the downside making the risk/reward of a given trade not particularly attractive. In this recent case, how much more downside risk do you think gold has compared to upside risk when price is down below $1550? If we were moving into a rising or higher interest rate environment, that would be one thing but we are going to remain mired in an ultra-low interest rate environment for the foreseeable future; one that I might add is highly conducive to owning gold since opportunity cost is lowered to hold the metal in that sort of environment. Besides, any solution being offered by the West to shore up its tottering economies is going to certainly contain measures designed to increase liquidity (debauch the currency by money creation). In that environment, gold's risk will always be more to the upside than to the downside, again, especially after it has been battered down so severely.