"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, November 14, 2012

HUI Under Intense Selling Pressure

EVer since Newmont and Barrick reported "less than stellar" earnings, (and that is being generous with my choice of words), the mining sector has not been able to shrug off the selling pressure coming from both disappointed bulls as well as opportunistic bears.

The technical posture of the market has deteriorated but if the index is able to stay above the former downsloping trend line which it took out in early September, the long term bulls will be okay.

It is not uncommon to see a market breach a trendline and then come back to retest it before moving higher. If we get such a test, it will prove whether or not the resolve of the bulls remains intact and whether they still see the mining sector as the strong value that they did a couple of months ago. I think it is an obvious statement that the Newmont and Barrick news shook their confidence in a big way.

There is a bit of chart support near 448. If that cannot stem the bleeding in the sector, the most likely target for the next support region arises near 440.

The problem that the sector has right now is that the disappointing earnings numbers, combined with strong weakness across the broader US equity markets, have given rise to that infernal ratio spread trade of the hedge funds, a trade which I might add has proven to be wildly successful for them even as it has produced massive frustration among the long-term oriented holders of these companies. It has also produced dramatic UNDERVALUATION of the shares in selective companies at times. This looks to be once again developing with the stubborn refusal of the Comex gold and silver markets to follow the shares lower.

This dichotomy between the shares and the metals cannot go on indefinitely however so something will eventually give. Either the metals will follow the shares lower or the shares are going to rebound.

given the fact that the S&P 500 is flirting dangerously with a critical support level, it is going to take a near Herculean effort on the part of the mining sector bulls to drive these share prices back higher. If we do get one of these "miraculous" rebounds in the S&P 500, especially in the last hour of trading, I would look for selling pressure on the mining shares to dissispate.


  1. Hi Dan,
    Could you explain how shorting the shares works, is this real short interest or some sort of synthetic sort / naked short etc? For instance, a number of my issues are listed as hard to borrow, but there appears to be no significant short interest (under 1%) in them.


  2. IAMGOLD dropped about 20% today.


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