HUI Chart and Comments

The HUI is reeling once again as it continues losing value against the price of an ounce of gold bullion. The index has fallen below chart support at the round number of 400 and is currently near the lows of the day as I write this.

As you can see from the following chart, it is approaching what I consider to be one of the most significant levels of chart support from a technical analysis perspective, and that is the critical 50% Fibonacci retracement level.

The mining shares as a whole, have now retraced exactly HALF of all their gains from the bottom that was produced back in late 2008 when we got the first round of QE that was used to buy up all those "wonderful" mortgage backed securities.

If the index is going to bottom, it will bottom here and now or else it is going to experience a washout that could possibly take it down towards the 340 level at which point the shares will either reverse or basically end up back where they started from in 2008.

Keep in mind that value-based buyers are now a definite minority when it comes to investing. Actually we have very little investors left in the markets as they are all becoming traders thanks to the hedge fund crowd which in effect, has become the market.

This the reason why we cannot as of yet see a bottom in the mining shares, no matter how inexpensive they become in comparison to bullion and in spite of some very good profits being reported by some specific firms.

The hedgies are using them as the short leg of that same ratio spread trade which has been their bread and butter in the gold sector for the last two years. When they finally are forced out, that will be a sight to see but for now, they continue to overwhelm the value-based buying that is occurring in this sector.

Notice the last chart showing the CLOSING MONTHLY PRICE  - back at levels last seen at the very inception of the gold bull market in 2001!

Gasoline Prices continues Getting Knocked Lower

Count me in as one of those who firmly believes that the Bernanke-led Fed has been doing everything in its power to rescue their boss's rear end from the fire of higher gasoline prices which is sinking his poll numbers along with the rest of the economy.

How so you might ask? Simple - they are absolutely close-mouthed on any hints of further monetary stimulus to electrify the paddles on the defibulator that is now needed to stave off the contagion effects from the woes besetting the Euro Zone. As the entire commodity sector gets hit by the risk off trades, we hear dead silence from our illustrious money masters.

They know full well what will happen the moment the speculative community becomes convinced that the next round of QE is on the way.

With this is mind, note the following press release from the EIA (Energy Information Agency) that came down the wires this morning.

*DJ EIA Estimates US Retail Gasoline Won't Top $3.90 For Any Month In 2012

*DJ EIA Previously Estimated US Retail Gasoline At $4.01 For May

*DJ EIA: US 2012 Gasoline Use Seen At 8.67M B/D, Lowest Since 2001

Just what the doctor ordered for Mr. Obama who will no doubt crow like a rooster about how his "policies" are working to lower gasoline prices for the "working men and women of this great nation". Actually I think I just inadvertently cut a campaign commercial.

The point to bring away from all this is quite simple - the economy stinks to high heaven, in spite of what the RA-RA squad keeps trying to convince the nation. If it were actually in decent condition, gasoline demand would be higher. (There will be those who attribute all of this to Americans driving more energy efficient cars). The truth is Americans are cutting back on driving because they cannot afford to fill their tanks especially those who are out of work or underemployed.

So, the money masters have figured out that they can get the hedge fund computers to take the price of gasoline lower, along with the rest of the commodity world, to where it reaches a level that once they do decide the pull the trigger on the QE front to slam the stock market higher ahead of the election later this year, that gasoline will then get levitated from a much lower level.

The problem they have is if they wait too long and do not act, those same speculators are liable to unload on the equity markets which will then set off another whole set of issues for these plate spinners to deal with.

Silver Chart and Comments

Silver is being pummelled today, along with just about every other single commodity on the planet, as the combination of the Socialist win in France along with the results of the Greek elections, has traders running away from growth assets and into the "safety" of US Treasuries ( I still have trouble saying those words in the same sentence).

Many are fearing that Greece will not be able to hobble together a governing coaltion in time ot meet the detail for their loan bailout package.

Either way, the usual "sell everything in sight" mentality has taken over the markets with the result that it has taken silver down below important chart support at the $30 level. As you can see on the following chart, it is trading below horizontal support as well as Fibonacci retracement support at the 61.8% retracement level.

The price remains mired in the downtrending channel shown and if recent history is any guide, it should stabilize either today or tomorrow before grinding sideways once again and deciding whether or not it wants to embark on another leg down (there is not much support on the chart now until it gets to near $28.50 - $28.25 or so. If it falls below the downsloping red line at the bottom of the channel, it will get there. If not, perhaps the bulls can take it back towards $30.50 which is the next upside resistance level that is going to have to be cleared to rattle the bears who remain in control of this market.

Trader Dan on King World News Metals Wrap

Please click on the following link to listen in to my regular weekly radio interview on the KWN Weekly Metals Wrap.

http://tinyurl.com/889qks3

 

S&P 500 Back Below its 50 Day Moving Average

The S&P 500 continues to act like a market wants to break down much more sharply than it has hitherto done before. Its trip back to the 1400 level this week did not last very long as it met up with some rather heavy selling; selling that appears to be of a nature of one that is now looking to sell rallies rather than buy dips.

To confirm at least some sort of short term top in this market, I would need to see this thing close stronlgy below the 1350 level. That level held it in check back in February of this year so a  good close below it would tell us that even the longs are getting tired of holding this market higher.

Notice how the MACD indicator shows a market that has been basically GRINDING higher rather than one that has been moving strongly higher on good momentum. It is almost as if no one believes this thing should be where it is and yet it has kept pushing up.

Upside Momentum has now declined notably with the indicator barely registering above the ZERO level before it is now threatening to roll back over again.

If the Fed and the boyz are going to act to prop it up, they had better hurry because it has all the makings of a market that could make a very sharp downside move.

Keep in mind that the level of the US equity markets have now become "national security" issues as far as the monetary authorities are concerned. While they are high-fiving themselves over what they have managed to pull off in the commodity sector and in the Treasury markets where interest rates continue to plummet (GOOD - the US government can borrow even more money and pay next to nothing to the chumps that lend money to it), they no doubt are keenly watching the equity market charts.

Take a look at the weekly chart where the indicator is generating its first sell signal since early last year.

Commodity Sector Continues to Reel

Today's pathetic payrolls number brought on more of the risk aversion or "slowing growth" trades with the result that it has now sent the commodity sector down to levels last seen in September 2010.

The 50 week moving average is coming perilously close to crossing down below the 100 week, further confirming the downward trend. If the Fed indeed was hoping to see commodity prices weaken to avoid the fallout from their little episode of money creation, so far they have gotten their wish.

The problem they have however is if stock prices continue to swoon lower, which they DO NOT WANT. If they are required to resuscitate equities by engaging in another round of QE, they certainly have room do so once again as far as the price of hard assets go.

On the longer term monthly chart the index has now decidedly fallen below both median lines as well as violated the 38.2% Fibonacci retracement level of the rally off the 2008 bottom, a bottom formed when the first round of QE came our way. From a purely technical chart perspective, there is no chart support until until the 50% or halfway point of the entire rally from that same 2008 low to the early 2011 high. That level does not come in until close to the 507 level.

Note even in spite of the current weak technical posture of the sector, the index still remains in a decided uptrend as the chart pattern is a series of higher highs and higher lows as you move from left to right.

While wholesale prices of the commodity sector as a whole are moving lower, they are still much higher than they were a mere 4 years ago; something to keep in mind whenever the Fed and the feds parrot the nonsense to us that inflation pressures are tame.

Gold Chart and Comments

Today's payrolls number was just as rotten, if not more so, than most traders and analysts had been expecting. The numbers coming out of the private firms were indicating this and they were very accurate. The problem is that the jobs number was even worse than nearly anyone had anticipated so we did get a very strong reaction in the equity markets with bulls running to the hills sending up smoke signals (this one is for that famous native American running for the Senate in Mass.)  for Mr. Bernanke and company to come and save them. Alas, Mr. Bernanke must have been over sipping some latte at Starbucks as he was no where to be found.

Gold reacted very well to all this partly because the news has traders convinced that this is another notch in the pole adding up to pushing the Fed into another round of bond purchases, aka, QE, and partly because of uncertainty over the upcoming elections in France. How that turns out could impact monetary policy over there.

Also, when one considers the fact that the CCI (Continuous Commodity Index) plummeted lower today with crude oil and gasoline getting whacked, to see gold and silver for that matter, moving higher is encouraging.

It looks to me like they are trying to drive down the price of gasoline to prop up Mr. Obama's pathetic poll numbers. Gasoline futures tend to peak in May anyway but I do find it noteworthy that the entire commodity sector as a whole is pushing relentlessly lower. This gives the doves at the FOMC plenty of ammunition in advocating more stimulus.

The HUI managed to claw its way back above technical chart support at the 420 level as it is bucking the trend of lower equities today. I would feel more confident about a final bottom being forged in these shares if the index could get back above 440, particularly after such a spike lower and sharp rebound as it has so far done today. See yesterday's post as a reminder of just how undervalued these gold shares are in relation to bullion...

More later as time permits...

Mining Shares Continue being Pummeled

No matter which way you measure it, the mining shares are systematically being destroyed as the HUI just made a new 52 week low in today's session.

What else can be said about these shares that has not already been said - their performance against the price of gold bullion has been atrocious while they have seriously underperformed the broader market since September of last year.

Management needs to get out in front of this and where possible, cash profits should be returned in a much larger percentage to the shareholders in the form of a stronger and higher dividend. They have to give the owners of these shares some incentive to continue to hold them and with zero to mere meager dividends, there simply is not enough to keep the longsuffering holders hanging in there.

In an interest rate environment as low as this one, a 2% dividend is a joke considering the fact that there has been a huge capital loss in so many of the shares. That sort of dividend does little to compensate the holders for these paper losses that so many are accruing. Only those who for the most part bought into the shares at the end of 2008 or into the first part of 2009 have some cushion to work with.

Note the HUI-Gold ratio chart using the closing monthly prices only. It is now at levels last seen at the end of 2001! We are talking more than a decade ago as far as valuation against an ounce of gold.

Here is one more look (as if to add insult to injury at this point) the HUI in a monthly chart all by itself.

Note that unless it can recover the 420 level very quickly and move back above 440 so as to indicate a bottom has been put in, there seems to be little chart support until one gets to the 400 - 390 level. That is both a horizontal support level as well as the 50% retracement of the entire rally from the bottom formed after the first round of QE was announced way back in 2008.

If the index does not hold at that point, the shares could then be technically vulnerable to a final washout all the way back to 350. At that point, one would expect to see the final end to this mauling. After all, the discounted value to gold bullion would make it irresistible to sovereign wealth funds not to mention a huge wave of buyouts and takeovers by majors of juniors and exploration companies.

One thing to note here - the S&P 500 is once again flirting dangerously with its 50 day moving average which is a mere 6 points below it current level as I write this. If tomorrow's employment numbers are the stinker that many expect them to be, it will probably initially fall through this level. if it then rebounds, it will do so on hopes or expectations that the Fed will not be able to avoid another round of QE. After all, they have managed to smash the commodity sector down and even gotten gasoline to move lower. They have plenty of room now to play if they want to.

The big question is, will Bernanke save his boss Obama or will he let the stock market implode by standing by if the economic data has traders selling equities during an election year? I doubt it because he is out of his job as Master of the Universe if Romney wins and believe me, he damn well knows it.