"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


Wednesday, May 9, 2012

HUI holds Critical Support - Upside Reversal

In yesterday's post I mentioned that if the HUI was going to bottom, it was going to do so right now and right then. See the link here...


If not, it was going to drop down towards the 340 region on a final washout.

In today's session, apparently the buyers showed up in a very large way at this key techical level. The index put in what is called in technical analysis terms, an outside day bullish reversal. This basically occurs AFTER A MARKET HAS BEEN IN A SUSTAINED DOWNTREND, goes on to make a new low for the move (which the HUI did today sincking all the way to 392), then reverses higher taking out the previous day's high.

Note the chart pattern.

What we need to see however to CONFIRM a bottom, is for additional upside followthrough to occur that takes the index AT LEAST through the blue line noted on the chart just above the 420 level.  I will feel much more confident however about the sector in general if it can CLOSE A WEEK ABOVE THE 440 LEVEL particularly if it can clear the initial Fibonacci retracement level near 434.

This reversal pattern used to be very reliable in the past but with the advent of the hedge fund algorithms and their inept, clumsy and downright incompetent trading patterns, rushing ALL IN or ALL OUT on any given day, I have seen too many of these patterns turn out to be one day fake outs. This is why I tend to be a bit more conservative or cautious and prefer to see some additional signs of solid buying before getting too optimistic. All too often we see sellers come right back in and use the rally to unload on the new longs that have just come back into the market after patiently waiting for an entry point only to get slapped in the face.

If the bottom is for real, it will manifest itself shortly. Let's see what we get the next couple of days.

One thing is certain at least for today - the shares were just too cheap for some to pass up. It also looks like there was some profit taking in those hedge fund ratio spread trades today.

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